Companies to Look for DOJ Proof on Leniency Pledge, Lawyers Say

Corporations will want to see proof in upcoming settlements before they buy into the Justice Department’s new pledge to go easier on businesses that self-report internal misconduct, white collar lawyers say.

DOJ Criminal Division chief Kenneth Polite unveiled a concrete roadmap Jan. 17 for corporations—including repeat offenders—that voluntarily disclose missteps to avoid charges and receive significantly reduced fines, provided they meaningfully cooperate.

That will jump-start conversations with corporate clients about whether it’s now worth the risk in certain scenarios to inform the department of uncovered wrongdoing, defense attorneys said.

Their clients will want the Justice Department to demonstrate resolutions that define the model behavior prosecutors desire. This may challenge the department to lure many more companies to its doors, given the infrequency of Criminal Division corporate resolutions and declinations, or decisions not to press charges.

“Increased transparency and greater potential benefits will give companies a greater incentive to self-disclose, but the question though right now is, will the new policy really move the needle to have more companies come in?” said Leo Tsao, a Paul Hastings partner and former supervisor in DOJ’s money-laundering section. “That’s a question that remains to be seen because you need some more resolutions.”

The corporate enforcement updates build on a Biden administration focus to prosecute more individuals, such as senior executives, for roles in white-collar crime. The latest announcement addresses business community concerns about self-disclosing potential misconduct to the Justice Department at the same time it’s trying to crack down on recidivists and impose more independent compliance monitors.

‘When We See It’

Polite announced that companies with aggravating factors, such as previous criminal settlements, can still see investigations conclude without prosecution if they meet a three-pronged standard. That includes disclosing the alleged misconduct “immediately” after they learn of it and providing “extraordinary cooperation” with the ensuing investigation.

The Criminal Division leader retained discretion for prosecutors over how they’ll define “extraordinary cooperation,” telling a gathering at Georgetown University Law Center that DOJ will know it “when we see it.”

Multiple defense lawyers flagged this as a term they’ll be eagerly looking to see fleshed out in forthcoming resolutions or declinations.

“If the department sets the bar for overcoming aggravating factors so high that getting over it is virtually impossible—if, for example, the department shows a substantial reluctance to designate companies’ cooperation ‘extraordinary'—then this policy change is likely to have little impact,” said Albert “BJ” Stieglitz, a former senior manager in DOJ’s criminal fraud section who’s now a partner at Alston & Bird.

If instead, the government demonstrates a significant willingness to issue declinations in the presence of aggravating factors, the policy “could have a much more significant incentive effect,” Stieglitz said.

75% Discounts

Although declinations remain the ultimate goal, self-disclosing businesses facing a potential settlement may still be enticed by the department’s move to update the maximum discount off the recommended penalty from 50% to 75% off the low end of sentencing guidelines. Even those that don’t self-report but fully cooperate and remediate can get 50% off the low end.

The fact patterns, such as egregiousness of the crime and level of cooperation, surrounding which companies DOJ deems eligible for these benefits in upcoming resolutions will also be closely watched.

“I’ll be looking especially at the interplay between the bigger maximum potential fine reductions on the one hand, and the higher standard of cooperation the Criminal Division is requiring to obtain them on the other,” said Blake Goebel, a partner at Boies Schiller Flexner who until this month was a trial attorney at DOJ’s criminal fraud section.

Companies will also want to compare the resolutions and declinations that get announced subject to the policy change.

“It will be useful to see the difference between companies that have met the requirements under the new policy and the companies that haven’t,” Tsao said. “Companies will want to see this difference so they can make the assessment on the potential benefits and costs of coming in and self-disclosing.”

Yet published declinations have been few and far between. Under its corporate enforcement policy, the Criminal Division reached eight resolutions and issued two declinations in 2022.

Polite said to expect more action in 2023.

In addition to publishing online the “limited number so far of non-prosecution or deferred prosecution or other agreements,” it would be helpful for the Criminal Division to post a “model” settlement agreement, said Vipal Patel, a Squire Patton Boggs partner who was acting US attorney in Ohio’s Southern District. This “certainly would help the corporate world and legal bar have a better understanding of what DOJ Criminal Division’s expectations are.”

Until more announcements are made, however, the department’s bid to forge greater trust and cooperation may still leave companies concluding that it’s too unpredictable to turn themselves in.

“Corporations will rightly be wary about self-disclosure until it is clear what a company must do to demonstrate immediate disclosure and robust pre-existing compliance and controls,” said Kevin Chambers, a partner at Latham & Watkins who until recently was an associate deputy attorney general overseeing the Criminal Division. “But this appears to represent a significant opportunity for large corporations to avoid criminal resolutions.”