DOJ Unveils Nationwide Voluntary Self-Disclosure Policy for Corporate Criminal Enforcement
On February 22, 2023, the US Department of Justice (DOJ) announced a new voluntary self-disclosure policy for corporate criminal enforcement. The self-disclosure policy, which is effective immediately, applies to US Attorney’s Offices (USAOs) nationwide. Among other guidance, the policy sets forth the criteria that USAOs will use to determine whether a disclosure constitutes a voluntary self-disclosure (VSD) and the benefits afforded to companies meeting the standards for a VSD. The policy offers substantial penalty reductions to companies that voluntarily and timely self-report misconduct. As a whole, the policy seeks to provide more transparency and predictability concerning the conditions of DOJ’s self-disclosure policies and the benefits to companies that meet those conditions.
The announcement of a uniform self-disclosure policy follows a commitment DOJ made last year to implement and standardize voluntary self-disclosure policies for corporations, in an effort to promote individual accountability and corporate responsibility. In announcing the new policy, Southern District of New York US Attorney Damian Williams stated that the policy “seeks to incentivize corporations to do the right thing by reporting wrongdoing before detected by regulators and law enforcement.” DOJ hopes that the new policy “has a long-standing, nationwide effect in promoting honest corporate culture and leads to more companies getting ahead of financial malfeasance before authorities come to them.”
Background: The Monaco Memo and the CEP
The new self-disclosure policy announced last week represents the culmination of DOJ’s months-long effort to implement self-disclosure policies nationwide. In September 2022, Deputy Attorney General (DAG) Lisa O. Monaco issued a memorandum (the Monaco Memo) that, among other initiatives, instructed each component of DOJ that prosecutes corporate crime to review its policies on corporate self-disclosure and, if no formal written policy existed, to draft and publicly share such a policy. The new policy expands upon the DOJ Criminal Division’s Corporate Enforcement Policy (CEP), which was revised last month pursuant to the Monaco Memo. Both the Monaco Memo and the revised CEP were discussed in previous Arnold & Porter advisories, available here and here, respectively.
Although the Monaco Memo did not, at the time, mandate criteria for each USAO’s self-disclosure policy, it did set forth two principles that would apply to all programs: (1) absent aggravating factors, a company would not be required to plead guilty for conduct that it voluntarily self-disclosed and (2) an independent compliance monitor would not be required for a company that voluntarily self-disclosed and demonstrated that it has an effective compliance program. These two principles remain in DOJ’s new self-disclosure policy, described in detail below. Many of the conditions contained in the new self-disclosure policy mirror, and in some instances expand upon, the principles and policies outlined in both the Monaco Memo and the revised CEP.
In response to these initiatives, the Attorney General’s Advisory Committee (AGAC) requested that the White Collar Fraud Subcommittee develop a standardized corporate voluntary self-disclosure policy. According to DOJ’s press release announcing the new policy, the policy was prepared by a Corporate Criminal Enforcement Policy Work Group comprised of US Attorneys from geographically diverse districts.
DOJ’s New Voluntary Self-Disclosure Program
Standards of Voluntary Self-Disclosure
The new voluntary self-disclosure policy has two main components: (1) a section detailing the standards that a company must meet for a disclosure to constitute a VSD under the policy and (2) a description of the benefits afforded to companies meeting the standards for a VSD.
The policy explains that the USAO will make decisions about whether a disclosure constitutes a VSD “based on a careful assessment of the circumstances of the disclosure on a case-by-case basis and at the sole discretion of the USAO.” Pursuant to the policy, that decision is based on factors such as voluntariness, timeliness, and the substance of the disclosure and accompanying remedial actions. The company must make the disclosure voluntarily, before the misconduct is publicly reported or otherwise known to DOJ.
DOJ will not deem a disclosure to be voluntary if there is a preexisting duty to disclose the misconduct, such as pursuant to regulation, contract, or a prior DOJ resolution (e.g., non-prosecution or deferred prosecution agreement). Further, the policy does not apply when a whistleblower disclosed the misconduct to the USAO.
As for timeliness, a disclosure must be made to the USAO: (1) prior to an imminent threat of disclosure or government investigation; (2) prior to the misconduct being publicly disclosed or otherwise known to the government; and (3) within a reasonably prompt time after the company becomes aware of the misconduct, with the burden being on the company to demonstrate timeliness.
Finally, regarding the substance of the disclosure itself, DOJ mandates that the disclosure must include all relevant facts concerning the misconduct that are known to the company at the time of disclosure. DOJ acknowledged that a company may not know all relevant facts at the time of disclosure and, if not, should make clear that the disclosure is based on preliminary information. DOJ expects companies to preserve, collect, and produce relevant documents in a timely fashion, and, should the company conduct an internal investigation of the misconduct, provide the USAO with factual updates as the investigation progresses.
Benefits of Meeting the Standards for Voluntary Self-Disclosure
To incentivize companies to self-report wrongdoing, the new policy offers steep discounts on sentencing and other resolutions for companies that meet the standards set forth above. Under the policy, the USAO will not seek a guilty plea—absent an aggravating factor—where a company has met the disclosure standards and has timely and appropriately remediated the criminal conduct. DOJ notes several aggravating factors that could lead the USAO to seek a guilty plea, such as when the misconduct “poses a grave threat to national security, public health, or the environment[,] is deeply pervasive throughout the company[,] or involved current executive management of the company[,]” among others.
The policy also offers several sentencing-related reductions for companies that voluntarily self-disclose. DOJ explains that the USAO may choose not to impose a criminal penalty at all where the VSD standards are met, but if it does, the penalty will not exceed 50 percent below the low end of the US Sentencing Guidelines (the Guidelines) range. The policy also offers sentencing reductions in cases where a company meets the conditions but a guilty plea is warranted due to the presence of an aggravating factor, including, for example, a recommendation by the USAO to the sentencing court of a penalty reduction of 50–75 percent off the low end of the Guidelines range.
Receiving credit for self-disclosures depends on whether a company engages in remedial measures. Appropriate remediation under the policy must include, but is not limited to, the company agreeing to pay all disgorgement, forfeiture, and restitution resulting from the misconduct. The policy explains that the USAO will rely on operative provisions of the Monaco Memo to assess whether a company has appropriately remediated criminal conduct.
Compliance and Monitorship
Finally, consistent with the Monaco Memo, the new policy provides that the USAO will not require an independent compliance monitor for companies that comply with all of the disclosure standards, as long as the company demonstrates that it has implemented and tested an effective compliance program. Decisions about whether a monitor is needed will be made on a case-by-case basis at the USAO’s sole discretion, and existing compliance programs will be assessed based on the standards set forth in the Monaco Memo.
Although the new self-disclosure policy is largely consistent with previous DOJ policies on corporate cooperation, it offers clearer, uniform standards and incentives for corporations and the defense bar. The new policy underscores DOJ’s continued emphasis on cooperation as an avenue for reduced penalties. It also highlights DOJ’s desire to quickly and effectively identify and remediate corporate criminal misconduct, placing pressure on corporations to monitor, investigate, and report suspected misconduct.
The decision whether to self-disclose misconduct is one of the trickier issues that a company may face, and the jury is out on whether the new policy will lead to a meaningful increase in self-disclosures. Regardless, though, the new policy provides an important reminder to companies that they should have robust compliance programs in place, and that these programs and compliance personnel should closely monitor corporate activity and bring to light any suspected wrongdoing.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.