Bloomberg Law
Jan. 12, 2022, 9:45 AM

U.S. Signals Corporate Crime Shifts in Pair of Fraud Settlements

Ben Penn
Ben Penn

Year-end penalties imposed against two companies provide the first tangible signs of how the Justice Department plans to approach corporate crime by pressing for more guilty pleas and imposing outside monitors.

Global financial services firm NatWest Markets PLC pleaded guilty to wire and securities fraud on Dec. 21, stemming from market manipulation schemes, and housing contractor Balfour Beatty Communities LLC entered a guilty plea Dec. 22 for defrauding three branches of the U.S. military.

They’re the first two corporate criminal resolutions the department has announced since Deputy Attorney General Lisa Monaco pledged in October to crackdown on companies that are recidivists, lack ironclad compliance programs, or are slow to cooperate.

“From looking at the NatWest and Balfour Beatty resolutions, you know that the department is doing what Lisa Monaco said they’re going to do,” said Alison Anderson, a white-collar defense partner at Boies Schiller Flexner in Los Angeles who was a manager in DOJ’s Fraud Section through September. “They’re guilty pleas and they both include monitors. I think we’ll see a lot more of that and companies should really be prepared.”

That represents a shift from the Trump era, when comparable misconduct often led to deferred or non-prosecution agreements, and the use of corporate monitors sharply declined. There are only seven active Fraud Section monitorships nationwide, according to DOJ.

The NatWest and Balfour Beatty cases send a clear message about the deputy attorney general’s guidance, a senior DOJ official said in a prepared statement to Bloomberg Law.

“Make no mistake: now is the time to invest in compliance, and be warned: DOJ will weigh all history of misconduct and impose serious consequences if a company breaches the terms of an agreement with the government,” the official said.

‘Big Red Flag’

DOJ highlighted NatWest’s breach of a prior non-prosecution agreement, along with other past criminal and civil offenses. While Balfour Beatty is a first-time offender, prosecutors dinged the company for being too slow to disclose information and take remedial action.

Collectively, the agreements represent a “big red flag” for other companies that are potentially facing DOJ investigations, said Jennifer Arlen, a law professor at New York University.

“What is striking here is that these companies cooperated but ended up with guilty pleas anyway,” said Arlen, who directs NYU Law’s Program on Corporate Compliance and Enforcement. “In both cases, neither self reported, neither had effective compliance programs, and both of the agreements make it clear that the companies provided some levels of cooperation but not the kind of full cooperation that the fraud section wants.”

New Approach

The resolutions in both cases are consistent with the approach Monaco laid out in an Oct. 28 speech and accompanying memo.

DOJ’s No. 2 official instructed prosecutors to consider the “full range” of prior misconduct by a company, while rescinding previous guidance discouraging the appointment of third-party monitors that ensure firms adhere to the terms of their deal.

“These resolutions help flesh out what the new policy is exactly,” said Benjamin Singer, a white-collar defense partner at O’Melveny in Washington.

For instance, Singer, who led several Fraud Section units over nearly a decade of DOJ service, was struck by the NatWest plea deal’s citation of a past civil settlement in which the company never accepted blame.

Monaco’s mandate to take prior settlements into account didn’t specify if a “no-admit, no-deny civil settlement would be included in the government’s consideration of an appropriate criminal resolution,” Singer said. “Well, now we know it is included. That is a significant change in DOJ corporate criminal policy.”

The department declined to comment when asked if prosecutors negotiating the NatWest and Balfour Beatty deals modified their posture in response to the new policy.

Rise in Monitors

The Justice Department is now studying how it selects corporate monitors and whether a standardized appointment process across all divisions is necessary, Monaco said in October.

In the meantime, Monaco wrote in her memo that DOJ “is committed to imposing monitors where appropriate” and that they should be favored when there’s a “demonstrated need” and “clear benefit.”

Imposing monitors on Balfour Beatty and NatWest should be a clear signal to other companies, attorneys said. Businesses oppose the use of third-party firms to ensure they adhere to the terms of a DOJ deal, arguing they’re expensive and intrusive.

The department acknowledged that both companies had taken steps to enhance their compliance systems. Balfour Beatty, for example, hired a chief compliance officer while NatWest voluntarily retained an outside compliance consultant.

Yet ultimately, DOJ said in both cases that a monitor was necessary because the internal compliance programs “have not been fully implemented or tested to demonstrate that they would prevent and detect similar misconduct in the future.”

“What the DOJ is saying is that if we view you as a recidivist, or we don’t think your compliance program is up to snuff, we’re going to seriously consider requiring a corporate monitor as part of any resolution,” said Henry Van Dyck, a partner at Faegre Drinker in Washington, who left DOJ in July as principal assistant chief of the Fraud Section unit that prosecuted both NatWest and Balfour Beatty.

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