It’s mid-September which means a few things: the days are getting shorter, the trees are beginning to show color, and DOJ and SEC enforcement officials are on the speaking circuit.
Earlier this week it was SEC Chairman Jay Clayton (see here for the prior post) and yesterday it was DOJ Deputy Assistant Attorney General Matthew Miner who spoke on the two primary goals of white collar criminal enforcement: “(1) to deter legally non-compliant behavior and punish it where it does occur; and (2) to encourage greater compliant behavior, including creating a more level playing field for those who play by the rules.”
“When these two goals are well-served, commerce flows more efficiently, investors have greater trust in our markets, and the dollar that is earned or paid has more value, because it hasn’t been diminished by fraud or corruption along the way.
And this brings me to the challenge the Criminal Division faces in calibrating its approach to enforcement. You can focus on deterrence exclusively, prosecuting cases aggressively with the intensity of a jackhammer – and that will, no doubt, have a deterrent effect and ensure wrongdoers are punished. That may also have an impact on increasing compliant behavior by reducing the numbers of bad actors. But there isn’t much of a message other than – break the law and we will find and prosecute you.
Of course, focusing on messaging alone doesn’t do much without the force and effect of prosecutions. To maximize our impact on the twin goals of deterrence and compliance, we need to ensure that our enforcement efforts match our enforcement message – and vice versa. This is especially important in the arena of economic crime and corporate enforcement. After all, economic crimes are motivated by economic considerations.
Fraudsters pursue money through what they see as an easier path – whatever form the fraud takes. If there is a perception that the government isn’t policing our markets or enforcing our laws, that easier path seems even easier. This is where steady enforcement, combined with a clear and consistent enforcement message, comes into play.
The Department of Justice and the Criminal Division have worked to be increasingly transparent about how we approach white collar criminal enforcement. For example, the Department has emphasized that it is focused on investigating and prosecuting the individuals responsible for fraudulent behavior and corporate crime. We believe holding individuals accountable maximizes deterrence. After all, if you are an unscrupulous individual considering enriching yourself to the tune of millions of dollars in a fraud scheme, it’s going to matter to you whether the Department is actually holding culpable individuals to account for their wrongdoing.
Similarly, for those individuals who are asked to aid or abet the criminal misconduct of their supervisors or coworkers, it will matter that such conduct could result in a prison sentence. Maybe that person walks away from the misconduct or becomes a whistleblower. Ideally, that person talks his or her colleagues out of engaging in the criminal conduct or brings in legal or compliance resources to get the misconduct under control.
The Fraud Section’s prosecution numbers illustrate how intensely we are focused on holding culpable individuals accountable. In 2017, the Fraud Section prosecuted a total of 309 individuals, which represented a significant increase over the prior year. In 2018, Fraud Section prosecutors charged an even higher number of individuals – 422. We are confident this focus is having a deterrent effect.”
Thus far this year, there have been 6 DOJ corporate FCPA enforcement actions and 5 of the 6 matters (83%) have not, at least yet, resulted in any related criminal prosecutions of company employees. In 2018, there were 8 DOJ corporate FCPA enforcement actions and 7 of the 8 matters (88%) have not, at least yet, resulted in any related criminal prosecutions of company employees. In 2017, there were 9 DOJ corporate FCPA enforcement actions and 6 of the 9 matters (67%) have not, at least yet, resulted in any related criminal prosecutions.
In short, DOJ officials can talk about the importance of individual prosecutions until the cows come home, but the reality is that in recent years approximately 80% of DOJ corporate FCPA enforcement actions have not resulted in any related criminal prosecutions of company employees. By the way, as highlighted in this prior post, for a large chunk of FCPA enforcement history approximately 90% of corporate FCPA enforcement actions resulted in related criminal prosecutions of company employees. (See this article explaining the main reason for the change).
Back to Miner’s speech.
“While we recognize that individual accountability is important, we also know that it isn’t enough. Businesses that profit from misconduct also need to be held to account. The Fraud Section has already reached 11 corporate resolutions in over the first eight months of 2019, which is an increase over the 10 corporate resolutions reached in the entire year of 2018.
[Interesting that just one law – the FCPA – accounts for 55% of the corporate resolutions brought by the DOJ’s Fraud Section thus far this year.]
We are proud of our work, but it is not the goal of the Criminal Division to chase numbers and be a one way ratchet in always bringing more cases. We need to shepherd our limited resources to bring the most impactful cases, and also exercise appropriate discretion when the facts don’t merit a criminal case.
We also realize that deterrence alone is not enough, especially with regard to the business community. Beyond deterrence, we’ve aimed to create incentives and clear guidance to help encourage responsible companies to invest in compliance and to trust that, if they respond appropriately to misconduct, they are going to be treated fairly by the government.
Some may question why such guidance is necessary, asserting that we should expect the corporate community to want to do the right thing without prompts or incentives. Although I understand that sentiment, the reality is that the business community is different from many of the other organizations that get targeted for criminal investigation. Drug cartels don’t have chief compliance officers. Child pornography rings don’t have audit committees. The mafia doesn’t issue 8-Ks.
We recognize that the Department’s policies and approach to cases can impact how companies, their boards, and executives react to misconduct and even develop systems that seek to discover misconduct. Accordingly, we need to be mindful of how our policies and enforcement approach are going to be perceived by industry and the bar, including whether our message is advancing or getting in the way of our ultimate goals.
To illustrate our approach and how we’ve tried to keep these considerations in mind, I’m going to walk through a few of our recent policy reforms, but I’m going to do so backwards, explaining the challenge or dilemma a company may face on the front end, and then adding background on how we applied a policy to help provide greater clarity.
For example, we understand that, after misconduct is detected, a company’s lawyer, whether an in-house lawyer or outside counsel, will need to recommend an approach to the C-Suite and, in many cases, the board. If that lawyer advocates for voluntarily self-disclosing the misconduct, he or she will inevitably face questions about the consequences of such a disclosure, both positive and negative, and be asked about the likelihood of those consequences. And this is why the Department has developed voluntary self-disclosure policies, like the FCPA Corporate Enforcement Policy, to provide greater clarity regarding how voluntary self-disclosures will be treated and what will be expected from companies that seek self-disclosure credit. It is also why we publicize our declination decisions under the policy. Similarly, this is why the Criminal Division has made clear that the principles of the FCPA Corporate Enforcement Policy will be applied, in appropriate cases, to corporate disclosures to the Division outside the FCPA context, including eligibility for the maximum benefit, namely a presumption of declination.”
Let’s pause here for a moment.
Don’t drink the Kool-Aid that the FCPA Corporate Enforcement Policy provides clarity regarding how voluntary self-disclosures will be treated and what will be expected from companies that seek self-disclosure credit. (See here).
“Even after we articulated these policies, we realized that we hadn’t provided adequate guidance regarding how we would approach misconduct discovered as part of a merger or acquisition. Aside from the questions counsel might face once misconduct was detected, we realized that uncertainty in this area could create a chilling effect, causing risk-averse companies with strong compliance cultures to shy away from acquisitions, especially in higher-risk markets. We amended our policies to make clear that the benefits of our voluntary self-disclosure policies would also be available to entities that uncover misconduct in an acquired entity and take appropriate action.
We want companies to invest in robust and effective compliance programs in advance of misconduct, as well as in a prompt remedial response to any misconduct that is discovered. But one can imagine a general counsel, chief compliance officer, or even a consultant being questioned about the concrete value of such investments, especially if the perspective is that Department will second-guess the adequacy of any program that allowed misconduct to occur. One can imagine questions akin to, “aren’t we going to have make these investments again, so why do them now?” “Doesn’t this just increase our chances of finding a problem – what’s the point of doing more than the minimum?” Or, “Isn’t the government just going to require a monitor, regardless of what we do in response to this mess?” It is for this reason that we have sought to be transparent about our approach to compliance programs, developing guidance for Criminal Division attorneys to use that not only sets forth questions that can be used to probe a program’s adequacy, but also the underlying rationale for such questions – explaining what we’re seeking to get at and how compliance program adequacy factors into our decision-making. We have also set forth guidance to make clear when the appointment of a monitor is appropriate – and not – pointing to the maturity of a compliance program as one of the key criteria.”
Kudos to Miner (as he has before – see here) for recognizing (as prior DOJ enforcement officials have) the policy rationale for an FCPA compliance defense. (See here and here for prior posts).
“Criminal investigations are – fortunately – not something most companies have to contend with on a regular basis, especially when compared in relative terms to the extent of civil litigation of various types a company often faces. Let’s face it, cooperation looks very different in corporate civil litigation than it does in a corporate criminal investigation. For non-U.S. companies, a criminal investigation may seem even more foreign, and cooperation with the government may not be an intuitive response to a prosecutor’s inquiry. Recognizing this, the Department has worked over the last few years to be as clear and concrete as possible regarding our cooperation expectations, both as to our expectations to satisfy the minimum threshold for any cooperation credit, as well as regarding what will be expected to achieve the maximum available benefit for a cooperating company.
I can go on and on, but I hope I’ve conveyed why we’ve been doing what we’ve been doing. In addition to providing guidance for our prosecutors to ensure we are approaching matters in a principled, consistent way, we’ve also aimed to put ourselves in the shoes of those on the other side of the table. We’ve aimed to identify the dilemmas companies and their counsel face, and we’ve endeavored to craft policies and guidance that are clear and speak to those dilemmas.
We will continue to examine areas where additional guidance could be warranted. For example, we know that companies sometimes raise claims that they are unable to pay a proposed fine or monetary penalty. Although the U.S. Sentencing Guidelines and the sentencing provisions of Title 18 speak to this issue a bit, they don’t provide much in the way of concrete guidance or factors to consider. Accordingly, we are considering whether there are ways we can provide our prosecutors with better guidance and tools to assess such inability to pay claims.”
[As an aside, there have been several instances in FCPA enforcement actions in which companies have claimed an inability to pay. See here and here.]
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