The Department of Justice (DOJ) announced a new voluntary self-disclosure policy February 22, 2023, that sets uniform criteria for how and when prosecutors should reward corporate cooperation in criminal investigations. The new policy is the latest step in the Biden administration’s increasing emphasis on prosecuting individuals who are responsible for corporate criminal misconduct.
The Policy
Under the new policy, a company that becomes aware of criminal misconduct by an employee or agent of the company is encouraged to self-report the misconduct to the appropriate U.S. Attorney’s Office (USAO) before the wrongdoing becomes publicly known or is otherwise made known to the government. Whether a company has made a timely voluntary self-disclosure will be determined by the USAO on a case-by-case basis, though the USAO’s discretion will be guided by three main criteria:
- Voluntariness – the disclosure must be “voluntary” in the sense that there was no preexisting obligation to make the disclosure under a regulation, contract and/or prior DOJ agreement.
- Timing – the disclosure must be made (i) prior to an imminent threat of disclosure or government investigation; (ii) prior to the misconduct being publicly disclosed or otherwise known to the government; and (iii) within a reasonably prompt time after the company has become aware of the misconduct.
- Substance – the disclosure must include all relevant facts concerning the misconduct that are known to the company at the time of the disclosure.
Companies are offered some level of comfort even if the USAO determines that a disclosure fails to satisfy the above criteria. Prompt self-disclosures will still be “considered favorably,” even if they do not meet all of the criteria.
The Reward
Companies that make voluntary self-disclosures under the new policy are offered a concrete, and tantalizing, reward: the USAO will resolve the case against the company with a declination, non-prosecution agreement, or deferred prosecution agreement. The exact resolution is left to the USAO’s discretion and assumes that the company has fully cooperated after making the voluntary self-disclosure and has timely and appropriately remediated the criminal conduct, including by agreeing to pay all disgorgement, forfeiture, and restitution resulting from the misconduct at issue. Companies are offered even further certainty: if the USAO decides it is necessary to impose a criminal penalty, the penalty will be capped at no greater than 50% below the low end of the U.S. Sentencing Guidelines fine range.
The USAO retains discretion under the policy to seek a guilty plea if the case involves an “aggravating factor,” such as (i) a grave threat to national security, public health, or the environment; (ii) deeply pervasive misconduct throughout the company; or (iii) the misconduct involved current executive management of the company.
Companies are still offered some degree of benefit, however, even if an aggravating factor is present. If a company has otherwise complied with the policy, the USAO will recommend to the sentencing court a 50%-75% reduction in a company’s fine range under the Sentencing Guidelines and will not require the appointment of a monitor if the company can demonstrate that it has implemented and tested an effective compliance program.
Implications
DOJ’s new policy sets a national standard for evaluating corporate cooperation and offers companies predictability and uniformity in exchange for timely voluntary self-disclosures of misconduct. The policy, however, leaves some key questions unanswered.
First, to what extent is a company required to waive privilege in order to obtain full cooperation credit under the policy? The policy requires disclosure of “all relevant facts” concerning the misconduct known to the company, but those facts are often learned through privileged conversations. It remains to be seen whether a company can fully preserve privilege and fully comply with the self-disclosure policy at the same time.
Second, the policy may breathe new life into the debate over whether an employee’s right against self-incrimination should so easily give way to a company’s desire to achieve full cooperation credit. Employees are often left with no real choice but to cooperate with an internal investigation. Thus, the new policy deepens the potential conflict created by DOJ’s expectation that companies (and the lawyers who represent them) will essentially act as private attorneys general ferreting out misconduct within their own ranks.
DOJ’s voluntary self-disclosure policy offers companies new opportunities, but it also opens up new risks. Companies should work carefully with counsel to ensure that they have robust compliance programs in place geared towards identifying and rooting out criminal activity. When allegations of wrongdoing are uncovered, companies should consult with counsel as early as possible to determine whether a voluntary disclosure to DOJ is appropriate.
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