November 2, 2021 | Jennifer Clarke
Estimated reading time: 6 minutes
US DoJ narrows focus on individual accountability for corporate crime
The US Department of Justice’s Deputy Attorney General, Lisa Monaco, has committed to significant changes to the way it approaches corporate crime and misconduct. In a keynote speech to the National Institute on White Collar Crime, Monaco delivered a set of new policies and actions that will undoubtedly send a shiver down the spine of compliance teams and corporate boards alike.
Over the last year, Monaco explains that the Department of Justice (DoJ) has seen corporate crime take on a new dimension, especially with regard to national security, cyber vulnerabilities, and the use of data analytics in investigations. However, she adds that this new dimension is one of “degree and not of kind” and, as such, the DoJ has the same mission as ever – to “hold those that break the law accountable and promote respect for the laws designed to protect investors, consumers and employees”.
Accountability, Monaco says, starts with the individual. Looking ahead, it appears the DoJ will be narrowing its focus to make individual accountability a priority. As such, Monaco has announced that the DoJ will be investing in a “surge” of new resources to embolden the department’s prosecutors in cases of individual accountability, which are often “the most difficult that the department brings”.
However, despite the focus on individual accountability, it should not be forgotten that companies will still be held to account as a whole in the event of misconduct, and Monaco echoed the voice of many global regulators in highlighting the importance of corporate culture in preventing misconduct.
Corporate culture matters
Preventing and managing corporate crime within a large organisation is not necessarily easy, especially when resources are in short supply. However, Monaco notes, “corporate culture matters”. While it may take effort and resource to implement a company-wide culture of compliance, “a corporate culture that fails to hold individuals accountable or fails to invest in compliance […] leads to bad results”.
Over the last few months – particularly with the emergence of ESG – the industry has hotly debated the role of a company in its fiduciary duty to shareholders. In particular, it is asked whether the fiduciary duty to ensure a company does well financially trumps the wider obligation to be sustainable, for instance, or hold corporate boards strictly to account.
Monaco is clear in her answer to that question “a company can fulfil its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness”. She adds that companies actually benefit their shareholders by proactively putting in place effective compliance functions and investing in resources that will anticipate non-compliance, rather than patching it up after.
In a strong-armed approach from the DoJ, Monaco adds that it will “ensure that the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations”. She adds that it will “not hesitate to take action when necessary to combat corporate wrongdoing”.
Drawing on this strong message of enforcement, Monaco sets out the following actions that the department is taking to transform its policies on corporate criminal enforcement:
Disclosing information about all individuals in misconduct, regardless of position
The department will be reinstating guidance that had been previously rescinded that obliges companies to provide the department with all non-privileged information about individuals involved in or responsible for misconduct. This is regardless of position, status, or seniority and can no longer be limited to those “substantially involved”. Companies will need to disclose this information in order to be eligible for any cooperation credit.
Reconsider how prior misconduct affects decisions about corporate resolution
Moving forward, the DoJ will be ensuring that all prior misconduct of a company will be evaluated when making decisions about corporate resolutions. This is true even if previous misconduct is entirely different to the issue under investigation. Monaca notes that a record of misconduct “speaks directly to a company’s overall commitment to compliance program and the appropriate culture to disincentivise criminal activity”. With that in mind, the DOJ is issuing new guidance and will amend the department’s “Principles of Federal Prosecution of Business Organizations”.
Use of corporate monitors will no longer be an exception
Monaco notes that, in the event of non-compliance, there is a large degree of trust from regulators that corporations will commit to improvement and change its activities and culture – often through self-policing. In the event that this trust is called into questions, the department will call on independent monitors. Historically, monitors have been the exception and not the rule, however Monaco is rescinding this guidance and making it clear that independent monitors should be appointed “wherever it is appropriate to do so.” How independent monitors are selected will also be under review to ensure there is a standard selection process across divisions and offices.
Formation of the Corporate Crime Advisory Group
Monaco took this keynote speech as an opportunity to launch a new advisory group, the Corporate Crime Advisory Group, which will be formed of representatives from every area of the DoJ involved in corporate criminal enforcement.
What should firms do now?
Many firms will ask what this means for their compliance departments. Thankfully, Monaco highlights five action points to take away from her speech:
- Companies should actively review their compliance programs to ensure they adequately monitor for and remediate misconduct.
- For those currently under investigation, the DoJ will be reviewing the entirety of their criminal, civil and regulatory record from hereon in.
- For those that are currently cooperating with the government on cases of misconduct, they will now need to identify every individual involved in that misconduct – and produce all non-privileged information about the involvement of these individuals.
- For those currently negotiating results, it should not be assumed that a corporate monitor will not be appointed.
- Looking ahead, firms should understand that this is just the start of the DoJ’s actions to combat corporate crime.
It is rare to see radical new company approaches revealed in keynote speeches, but in this address, Lisa Monaco has grabbed the bull by the horns and unveiled a powerful new stance on corporate crime from the DoJ.
In 2020, we predicted that 2021 would be the year in which we saw the beginning of a new-wave of enforcement against individuals. Over the year, we have indeed seen a small trickle of enforcements against those at the top, and this is still on an upward trajectory.
In the UK, regulators attempted to take hold of individual accountability with the introduction of SMCR. However, even strict regulations have failed to carry water, with SMCR drawing criticism for the lack of enforcement action seen as a result.
Perhaps this is owing in part to the pandemic – with employees located outside the office it’s harder to create audit and communication trails. Whatever the reason, regulators so far have been strong on promise but weak on return with regard to individual accountability. The messaging from within the DoJ might just signal a change in tack… in the US at least.
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