Recently, Principal Associate Deputy Attorney General Marshall Miller gave this speech in which he talked about the DOJ’s “recent and ongoing changes to the … policies regarding corporate criminal enforcement …”.
In pertinent part, Miller discussed voluntary disclosure (a topic the DOJ has discussed for nearly 15+ years) as well as compensation clawbacks.
Miller began:
“In September, the Deputy Attorney General announced significant changes to the department’s corporate crime enforcement program, stemming from a year-long, top-to-bottom review that involved significant input from outside the Justice Department.
These policy changes incentivize corporate responsibility and promote individual accountability – by clarifying, rethinking and standardizing policies on voluntary self-disclosure and corporate cooperation and encouraging companies to rethink and potentially retool their compensation systems to promote compliance.
Through these reforms, we hope to assist general counsels, chief compliance officers and outside counsel in making the business case for investing in compliance and an ethical corporate culture.
We know that today’s economy requires corporate leaders to make tough choices about where to direct resources and how to set priorities. We want to make it easier for those leaders to make the right choices.
These policy changes have triggered significant public discourse. And that’s all to the good. The best ideas — the most important ideas — cause people to think deeply, to raise concerns, to engage.
We embrace that engagement, particularly since our efforts continue, and they will be enhanced by continued dialogue with experts like you here at the ABA.”
Regarding voluntary disclosure, Miller stated:
“The most important message here is the simplest one, and let me repeat it for emphasis: the department is placing a new and enhanced premium on voluntary self-disclosure.
When misconduct occurs, we want companies to step up and own up. When companies do, they can expect to fare better in a clear and predictable way.
For the first time, this is now true across the department. All components that prosecute corporate crime cases are in the process of preparing or updating voluntary self-disclosure policies that will be clear, public and feature the same core tenet: Any company that self-discloses misconduct promptly will not be required to enter a guilty plea — absent aggravating factors — and will not be assessed a monitor, if it has fully cooperated, remediated and implemented and tested an effective compliance program.
The message every corporation should hear is that the best way to avoid a guilty plea — for some companies, the only way to do so — is by immediately self-reporting and cooperating when misconduct is discovered.
Now, when policy changes occur, we understand that — regardless of their wording or content — practitioners are keenly interested in how these policies will be applied in practice. We’ve heard questions about whether the department might apply these policies technically, with an eye towards disqualification, rather than in the spirit they are intended.
Put simply, that is not the case. And while these are early days, let me provide some assurance by way of recent, real-life examples.
Let’s start with the ABB foreign bribery case that resolved [last week]. ABB Ltd. is a Swiss-based, multinational engineering company listed on the New York Stock Exchange.
[Last week], two of ABB’s subsidiaries pleaded guilty to conspiracy to violate the Foreign Corrupt Practices Act (FCPA), and the parent company entered into a deferred prosecution agreement requiring payments of over $315 million in penalties, in connection with bribery conduct in South Africa.
There’s a lot to say about this case, including the way it highlights the expanding global network of countries fighting international corruption, with the ABB case representing the department’s first coordinated resolution with authorities in South Africa.
I know that Criminal Division Assistant Attorney General Kenneth Polite, Jr. will discuss ABB later this week at the International Anti-Corruption Conference in Washington.
For today’s purposes, I want to focus on what the case says about voluntary self-disclosure. ABB entered into prior FCPA resolutions with the department way back in 2004 and then in 2010 — twelve years ago — when the company had a completely different management team.
In the wake of its prior misconduct, ABB implemented a compliance program that detected the FCPA misconduct in South Africa, and the company took active steps to self-disclose the wrongdoing to the department and the SEC.
But before the self-disclosure was complete, a media report drew public attention to the misconduct.
Now, because the company could demonstrate intent and actual efforts to self-disclose prior to and without any knowledge of the media report, the department weighed both the early detection of the misconduct and the intent to self-disclose it significantly in ABB’s favor.
And that was critically important here, because, as the DAG has stated, successive NPAs and DPAs for the same company are strongly disfavored.
Of course, other factors also were important to the department’s resolution decision.
As I noted, the prior misconduct was dated, having occurred over a decade before. ABB provided A+ cooperation, including the production to authorities of significant materials located overseas.
The company made overseas employees available for interviews, engaged in extensive remediation and upgraded and tested its compliance program.
Those who are tracking whether the department will walk the walk when it comes to rewarding voluntary self-disclosure should look very carefully at the ABB case — because far from taking a narrow, technical approach, the department assigned significant weight to ABB’s documented efforts to self-disclose in arriving at the ultimate result.
[…]
Bottom line: the department’s view is that voluntary self-disclosures not only alert DOJ to misconduct and assist in individual prosecutions, but such disclosures also can serve as indicators of strong compliance programs and responsible corporate leadership. And we will reward that.”
Miller next shifted gears to “discuss how the department is encouraging corporate compensation systems that incentivize ethical behavior.” He stated:
“As this audience knows, there’s nothing like having a personal stake in something to ensure it grabs your attention.
And perhaps as a result, the idea of linking personal financial incentives to compliance is far from new. Twenty years ago, the Sarbanes-Oxley Act provided for the clawback of executive compensation for top executives of public companies — though that provision’s force and scope are limited to the context of financial restatements.
The Dodd-Frank Act of 2010 included broader clawback provisions for public companies, a subject of SEC rulemaking that was just recently finalized.
And the financial industry has been at the tip of the spear in beginning to enforce clawbacks, with multiple U.S. banks clawing back tens of millions of dollars from offending executives.
But more needs to be done. Companies should review how their compensation policies, including as to clawbacks, are structured to incentivize compliant behavior and deter misconduct.
Companies that don’t have such policies should reassess. Companies that do have policies should ensure they are deployed regularly.
All too often we see companies scramble to dust off and implement dormant clawback policies once they are in the crosshairs of an investigation. A paper policy not acted upon will not move the needle — it is no better than having no policy at all.
To up the ante, the Deputy Attorney General directed the Criminal Division to examine how to reward corporations that develop and apply compensation clawback policies, with particular attention to how a company’s policies could shift the burden of corporate financial penalties away from shareholders — who frequently play no role in misconduct — onto those who bear responsibility. That effort is underway as we speak.
Recently, companies with global operations have identified concerns about executing clawbacks overseas due to foreign laws and employee protections.
Here, it is important to remember that using compensation systems to promote compliance isn’t just about clawbacks. It’s also about positively rewarding compliance-promoting behavior.
We expect companies to find innovative, effective and targeted ways to use compensation to incentivize good corporate behavior and deter misconduct, using their own mix of carrots and sticks.
For years, companies have designed and fine-tuned sophisticated incentive compensation systems that reward behavior that enhances profits. Companies must make the same level of investment in calibrating compensation systems to reward employees who promote an ethical corporate culture and mitigate compliance risk.
To put it bluntly, companies must ensure that their employees have skin in the compliance game.
Our work on corporate crime enforcement policy remains ongoing. At the Deputy Attorney General’s direction, the Criminal Division is reviewing best corporate practices to address use of personal devices and third-party messaging applications, including ephemeral messaging platforms.
The department is also reviewing the debarment and suspension process, including how to streamline information sharing between agencies.
We’re also looking at how the department can encourage corporate responsibility by taking care not to deter companies with strong compliance programs from acquiring companies with histories of misconduct.
As a starting point, acquiring companies should be rewarded — rather than penalized — when they engage in careful pre-acquisition diligence and post-acquisition integration to detect and remediate misconduct at the acquired company’s business. Stay tuned for more on acquisitions.”
