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Deputy AG Monaco On Individual Accountability, Prior Misconduct, Monitors, And NPAs and DPAs (With Commentary)


Last week, Deputy Attorney General Lisa Monaco delivered this speech as part of the ABA’s National Institute on White Collar Crime.

While the speech is generating a significant amount of attention, substantively the speech was largely a yawner and the policy changes articulated are marginal at best and elevate form over substance.

As has been highlighted several times on these pages, FCPA (and related) enforcement has long suffered from the following problem (nicely articulated by a practitioner in 1982):

“The government has the option of deciding whether or not to prosecute.  For practitioners, however, the situation is intolerable.  We must be able to advise our clients as to whether their conduct violates the law, not whether this year’s crop of administrators is likely to enforce a particular alleged violation.  That would produce, in effect, a government of men and women rather than a government of law.”

Deputy AG Monaco’s speech is just the latest in a long line of DOJ policy speeches to demonstrate this point.

The remainder of this post excerpts Monaco’s speech and provides certain commentary.

Deputy AG Monaco began:

“I have three priorities for my time with you. First, I want to describe three new actions that the department is taking today to strengthen the way we respond to corporate crime. Second, I want to look forward and tell you about some areas we will be studying over the next months, with an eye to making additional changes to help further invigorate the department’s efforts to combat corporate crime. But before both of those, I want to set the scene by discussing trends, as well as the Attorney General’s and my enforcement priorities, when it comes to corporate crime.

We can all agree the department’s enforcement activities in the white-collar space ebb and flow due to a variety of factors — some internal to the department and some external. When I started as a newly minted AUSA, it was an active time for enforcement against corporate crime — one that witnessed the prosecutions of executives at WorldCom, Qwest Communications, Adelphia, Tyco and Enron. I’ve experienced how — when given the right resources and support including dedicated agents — prosecutors can uncover and prosecute the most sophisticated corporate criminals. As Deputy Attorney General, my goal is to set our investigators and attorneys up for continued success, so that they can enforce the criminal law fairly and vigorously, as the facts and law dictate.

At the same time, I am focused on ensuring the department is clear with those of you who are counselors and voices in the C-Suite and Boardroom — so that you can provide well-informed advice to your clients. Having served as a board member when I was out of government, I can appreciate the difficult conversations that arise surrounding compliance and measures designed to proactively stop misconduct, and the tradeoffs that may need to be considered when making investment decisions. Clear department guidance strengthens the case for these measures because it makes clear why taking steps to root out misconduct, and avoid the “edge case,” often can be the most valuable guidance a general counsel or trusted legal advisor can provide.”

If the DOJ was truly interested in “clear department guidance,” why does certain guidance seem to change with each new administration?

Monaco continued:

“Since returning to the Justice Department this year, I’ve spent time considering the current enforcement landscape. That landscape has evolved in some noticeable ways from my last tour. Corporate crime has an increasing national security dimension — from the new role of sanctions and export control cases to cyber vulnerabilities that open companies up to foreign attacks. Second, data analytics plays a larger and larger role in corporate criminal investigations, whether that be in healthcare fraud or insider trading or market manipulation. Third, criminals are taking advantage of emerging technological and financial industries to develop new schemes that exploit the investing public.

At the same time, these developments are changes of degree and not of kind. We have long had corporate criminal cases with national security implications. We have been using data to assist investigations for well over a decade. And prosecutors have always had to grapple with evolutions in corporate fraud —whether that be the junk bond firms of the 1980s, the various fraud schemes created by the so-called “smartest guys in the room” at Enron, or the prolific mortgage fraud of the 2000s, or cryptocurrency schemes today.

But throughout, our mission must remain the same — enforce the criminal laws that govern corporations, executives, officers and others, in order to protect jobs, guard savings and maintain our collective faith in the economic engine that fuels this country. We will hold those that break the law accountable and promote respect for the laws designed to protect investors, consumers and employees.

Accountability starts with the individuals responsible for criminal conduct. Attorney General Garland has made clear it is unambiguously this department’s first priority in corporate criminal matters to prosecute the individuals who commit and profit from corporate malfeasance.”

DOJ enforcement attorneys have literally been saying the same thing about individual accountability for years.

In 2019, DOJ officials stated:

“While pursuit of criminal and civil remedies against corporations is important, we should always focus on the individuals responsible for misconduct. Cases against corporate entities allow us to recover fraudulent proceeds, reimburse victims, and deter future wrongdoing. But the deterrent impact on the individual people responsible for wrongdoing is sometimes attenuated in corporate prosecutions. The most effective deterrent to corporate criminal misconduct is identifying the people who commit crimes and sending them to prison.”

In 2018, DOJ officials stated: “focusing on individual wrongdoers is an important aspect of the Department’s FCPA program” and as follows:

“The Criminal Division’s commitment to corporate enforcement has been on full display with our emphasis on individual accountability.  A company only acts through its employees and agents.  It therefore makes sense to focus our investigative efforts on the culpable individuals – both to secure appropriate punishment for the bad actors, and to have the greatest impact on preventing and deterring corruption.”

In 2017, DOJ officials stated: “The DOJ is committed to holding  individuals accountable for criminal activity.” “Effective deterrence of corporate corruption requires prosecution of culpable individuals.  We should not just announce large corporate fines and celebrate penalizing shareholders.”

Previously, DOJ officials have stated that: “certainly…there has been an increased emphasis on, let’s get some individuals” and that it is “very important for [the DOJ] to hold accountable individuals who engage in criminal misconduct in white-collar (cases), as we do in every other kind of crime.”

Likewise, the DOJ’s FCPA Unit Chief stated that the DOJ is “very focused” on prosecuting individuals as well as companies and that “going after one or the other is not sufficient for deterrence purposes.”

Despite Monaco’s (and prior DOJ officials) rhetoric about individual accountability, the fact remains that approximately 80% of DOJ corporate FCPA enforcement actions lack any related charges against company employees.

Deputy AG Monaco continued:

“I recognize that cases against corporate executives are among some of the most difficult that the department brings, and that means the government may lose some of those cases. But I have and will continue to make clear to our prosecutors that, as long as we act consistent with the Principles of Federal Prosecution, the fear of losing should not deter them. As set forth in the Justice Manual, a prosecutor should commence a case if he or she believes that a putative defendant’s conduct constitutes a federal offense, and that the admissible evidence will probably be sufficient to obtain and sustain a conviction. So long as those principles are followed, we will urge prosecutors to be bold in holding accountable those who commit criminal conduct.

We are also going to find ways to surge resources to the department’s prosecutors. As one example, a new squad of FBI agents will be embedded in the Department’s Criminal Fraud Section. This team model has a proven track record and is one we’ve used in numerous high-profile cases. As I’ve seen personally, putting agents and prosecutors in the same foxhole can make all the difference, particularly in complex cases.

While the priority remains individual accountability, where appropriate, we will not hesitate to hold companies accountable.

Now, I recognize the resources and the effort it takes to manage a large organization and to put in place the right culture. The Department of Justice has over 115,000 employees across dozens of countries and an operating budget equivalent to that of a Fortune 100 company. So, I know what it means to manage and be accountable for what happens in a complex organization. But corporate culture matters. A corporate culture that fails to hold individuals accountable, or fails to invest in compliance — or worse, that thumbs its nose at compliance — leads to bad results.

Let me also be clear: a company can fulfill its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness. In fact, companies serve their shareholders when they proactively put in place compliance functions and spend resources anticipating problems. They do so both by avoiding regulatory actions in the first place and receiving credit from the government. Conversely, we will ensure the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations.

Although we understand the costs that enforcement actions can place on shareholders and others, our responsibility is to incentivize responsible corporate citizenship, a culture of compliance and a sense of accountability. So, the department will not hesitate to take action when necessary to combat corporate wrongdoing.”

If the DOJ were truly interested in incentivizing compliance, it would support an FCPA compliance defense. (See here as well as numerous prior posts embedded therein).

Deputy AG Monaco continued:

“With those priorities in mind, let me talk about three actions I am taking today with respect to department policies on corporate criminal enforcement. I anticipate that these changes are just a first step and will be followed by others as we study certain issues more closely. In the meantime, each of these will enable our prosecutors to continue to hold individuals and corporations accountable for their misconduct.”

Didn’t Monaco previously mention in her speech the importance of “clear department guidance.”? Apparently, however the “changes” she articulated “are just a first step and will be followed by others.” In other words, corporate community stay tuned, the DOJ will announce additional “changes” … when it feels like it.

Monaco continued:

“The first announcement augments our efforts to ensure individual accountability. To hold individuals accountable, prosecutors first need to know the cast of characters involved in any misconduct. To that end, today I am directing the department to restore prior guidance making clear that to be eligible for any cooperation credit, companies must provide the department with all non-privileged information about individuals involved in or responsible for the misconduct at issue. To be clear, a company must identify all individuals involved in the misconduct, regardless of their position, status or seniority.

It will no longer be sufficient for companies to limit disclosures to those they assess to be “substantially involved” in the misconduct. Such distinctions are confusing in practice and afford companies too much discretion in deciding who should and should not be disclosed to the government. Such a limitation also ignores the fact that individuals with a peripheral involvement in misconduct may nonetheless have important information to provide to agents and prosecutors. The department’s investigative team is often better situated than company counsel to determine the relevance and culpability of individuals involved in misconduct, even for individuals who may be deemed by a corporation to be less than substantially involved in misconduct. To aid this assessment, cooperating companies will now be required to provide the government with all non-privileged information about individual wrongdoing.

I anticipate some may say this means the government is going to unfairly prosecute minimal participants. Asking for this information does not alter the principles that govern fair and just charging decisions. Like every case, prosecutors will make decisions about individuals implicated in corporate criminal matters based on the facts, the law and the Principles of Federal Prosecution.”

As highlighted in this prior post, in November 2017 the DOJ released a non-binding FCPA Corporate Enforcement Policy (“CEP” – see here for the original version). The original version stated, under the heading “Voluntary Self-Disclosure in FCPA Matters”

“The company discloses all relevant facts known to it, including all relevant facts about all individuals involved in the violation of law.”

In the revised 2019 version (see here) the heading “Voluntary Self-Disclosure in FCPA Matters” stated:

“The company discloses all relevant facts known to it, including all relevant facts about all individuals substantially involved in or responsible for the violation of law.” (emphasis added).

Does anyone truly believe that switching back to the original standard is going to have any meaningful impact on DOJ “efforts to ensure individual accountability.” After all, even under the original standard approximately 80% of DOJ corporate FCPA enforcement actions lacked any related charges against company employees.

Deputy AG Monaco continued:

“The second change I am announcing today deals with the issue of a company’s prior misconduct and how that affects our decisions about the appropriate corporate resolution.

Today, the department is making clear that all prior misconduct needs to be evaluated when it comes to decisions about the proper resolution with a company, whether or not that misconduct is similar to the conduct at issue in a particular investigation. That record of misconduct speaks directly to a company’s overall commitment to compliance programs and the appropriate culture to disincentivize criminal activity.

To that end, today I am issuing new guidance to prosecutors regarding what historical misconduct needs to be evaluated when considering corporate resolutions. This will include an amendment to the Department’s “Principles of Federal Prosecution of Business Organizations.” Going forward, prosecutors will be directed to consider the full criminal, civil and regulatory record of any company when deciding what resolution is appropriate for a company that is the subject or target of a criminal investigation.

Going forward, prosecutors can and should consider the full range of prior misconduct, not just a narrower subset of similar misconduct — for instance, only the past FCPA investigations in an FCPA case, or only the tax offenses in a Tax Division matter. A prosecutor in the FCPA unit needs to take a department-wide view of misconduct: Has this company run afoul of the Tax Division, the Environment and Natural Resources Division, the money laundering sections, the U.S. Attorney’s Offices, and so on? He or she also needs to weigh what has happened outside the department — whether this company was prosecuted by another country or state, or whether this company has a history of running afoul of regulators. Some prior instances of misconduct may ultimately prove to have less significance, but prosecutors need to start by assuming all prior misconduct is potentially relevant.

Taking the broader view of companies’ historical misconduct will harmonize the way we treat corporate and individual criminal histories, as well as ensure that we do not unnecessarily look past important history in evaluating the proper form of resolution.”

Taking a broader view of a company’s prior misconduct makes sense, but news flash: the DOJ already has a track record of doing this!

Nearly every NPA and DPA in the FCPA context contains a “relevant circumstances” section in which the DOJ explains the facts and circumstances relevant to its resolution of the matter. One relevant factor often included in the DOJ’s analysis is the company’s prior criminal history – not just related to the specific law at issue in the enforcement action – but more broadly. (See for instance the 2020 FCPA DPA with Deutsche Bank referencing “the Company’s 2015 Deferred Prosecution Agreement with the Fraud Section and the Department of Justice’s Antitrust Division for criminal violations in connection with the Company’s manipulation of the London Interbank Offered Rate (“LIBOR Resolution”).”)

Deputy AG Monaco continued:

“The final change I am announcing today deals with the use of corporate monitors. Stepping back, any resolution with a company involves a significant amount of trust on the part of the government. Trust that a corporation will commit itself to improvement, change its corporate culture, and self-police its activities. But where the basis for that trust is limited or called into question, we have other options. Independent monitors have long been a tool to encourage and verify compliance.

In recent years, some have suggested that monitors would be the exception and not the rule. To the extent that prior Justice Department guidance suggested that monitorships are disfavored or are the exception, I am rescinding that guidance. Instead, I am making clear that the department is free to require the imposition of independent monitors whenever it is appropriate to do so in order to satisfy our prosecutors that a company is living up to its compliance and disclosure obligations under the DPA or NPA.

Of course, the decision to use monitors must also include consideration of how the monitorship is administered and the standards by which monitors are expected to do their work. And the selection of monitors will continue to be accomplished in a fashion that eliminates even the perception of favoritism. The department will study how we select corporate monitors, including whether to standardize our selection process across the divisions and offices.”

Monaco is referring to the October 2018 so-called Benczkowski Memo on the “Selection of Monitors in Criminal Division Matters.” However, that Memo (contrary to Monaco’s suggestion) never suggested that monitorships are disfavored or are the exception. The Memo specifically stated:

“In general, the Criminal Division should favor the imposition of a monitor only where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens. Where a corporation’s compliance program and controls are demonstrated to be effective and appropriately resourced at the time of resolution, a monitor will likely not be necessary.”

In this regard, it is interesting to note that in the one DOJ corporate FCPA enforcement action thus far in the Biden administration, no monitor was appointed. The Amec Foster Wheeler DPA states: “based on the Company’s and Wood’s remediation and the state of Wood’s compliance program, and the Company’s and Wood’s agreement to report to the DOJ … the DOJ determined that an independent compliance monitor was unnecessary.”

Next, Deputy AG Monaco previewed “some of the other issues [the DOJ] will review” and how the DOJ will “go about conducting that review.” She stated:

“The first area we will examine is how to account for companies who have a documented history of repeated corporate wrongdoing. In certain cases, the department sees the same company become the subject of multiple investigations — not just in the same office or section, but in multiple sections and divisions across the department. For example, a company might have an antitrust investigation one year, a tax investigation the next, and a sanctions investigation two years after that.

Because I’m concerned about this kind of repeat offender, I asked my office to start looking at the data on corporate resolutions. What we saw is that recently somewhere between 10% and 20% of all significant corporate criminal resolutions involve companies who have previously entered into a resolution with the department. So, we need to consider whether and how to differently account for companies that become the focus of repeated DOJ investigations.

One immediate area for consideration is whether pretrial diversion — NPAs and DPAs — is appropriate for certain recidivist companies. Corporate recidivism undermines the purpose of pretrial diversion, which is after all to give a break to corporations in exchange for their promise to fix what ails them, as well as to recognize a company’s cooperation. Some have questioned whether pretrial diversion is appropriate for any company who has benefited previously from such an arrangement. Does the opportunity to receive multiple NPAs and DPAs instill a sense among corporations that these resolutions and the attendant fines are just the cost of doing business? Are there other approaches that can promote cultural and institutional changes that will have a greater impact on deterring misconduct? These are some of the questions we will be studying in the coming months.

Another issue we will be studying is whether companies under the terms of an NPA or DPA take those obligations seriously enough. I want to be very clear — we have no tolerance for companies that take advantage of pre-trial diversion by going on to continue to commit crimes, particularly if they then compound their wrongdoing by knowingly hiding it from the government. It is hard for me to think of more outrageous behavior by a company that has entered into a DPA or NPA in the first place.

We will hold accountable any company that breaches the terms of its DPA or NPA. DPAs and NPAs are not a free pass, and there will be serious consequences for violating their terms. Recently, two different multinational corporations separately announced that each had received a breach notification from the Justice Department. This is obviously not a step we take lightly, but we will do so where necessary and appropriate.”

These pages have long called for the abolition of NPAs and DPAs in the FCPA context and have frequently pointed out that corporate FCPA repeat offenders have resolved a second FCPA enforcement action after resolving the first enforcement action through an NPA and DPA.

In this regard, it is good for the DOJ to revisit its use of NPAs, DPAs and perhaps other forms of alternative resolution (such as declinations with disgorgement).

Even so, it is funny (or perhaps ironic) to point out that prior DOJ officials (in prior Democrat administrations) advanced the policy position that DPAs (and NPAs) “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe” (see here for the prior post) and specifically in the FCPA context that “the companies against which DPAs and NPAs have been brought have often undergone dramatic changes.” (See here for the prior post).

Deputy AG Monaco then stated:

“… I am announcing the formation of the Corporate Crime Advisory Group, which will be made up of representatives from every part of the department involved in corporate criminal enforcement. This group will have a broad mandate and will consult broadly. It will consider some of the issues I previewed … — like monitorship selection, recidivism and NPA/DPA non-compliance — as well as other issues, like what benchmarks we should use to measure a successful company’s cooperation. It will also make recommendations on what resources can assist more rigorous enforcement, and how we ensure that individual accountability is prioritized. The advisory group will then develop recommendations and propose revisions to the department’s policies on corporate criminal enforcement.”

Once again, didn’t Monaco previously mention in her speech that importance of “clear department guidance.”? Apparently, the corporate community will have to stay tuned and wait – for who knows how long – until the DOJ comes up with additional recommendations and proposed revisions.

Deputy AG Monaco concluded as follows:

“I’m sure many of you in the audience are going to get calls from clients over the next few days with questions about what this all means. So, let me conclude by giving you the answers — with these five points:

  • 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.
  • For clients facing investigations, as of today, the department will review their whole criminal, civil and regulatory record — not just a sliver of that record.
  • For clients cooperating with the government, they need to identify all individuals involved in the misconduct — not just those substantially involved — and produce all non-privileged information about those individuals’ involvement.
  • For clients negotiating resolutions, there is no default presumption against corporate monitors. That decision about a monitor will be made by the facts and circumstances of each case.
  • Looking to the future, this is a start — and not the end — of this administration’s actions to better combat corporate crime.”

Readers of this site receiving call from clients would be wise to stress that Monaco’s speech was largely a yawner and the policy changes articulated in the speech were marginal at best and elevate form over substance.

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