Location Drives Tough Calls on Confessing Corporate Crime to DOJ

Lawyers for corporations thinking about confessing misdeeds in exchange for heightened leniency from prosecutors are weighing where they can get the better deal: Justice Department headquarters or a US attorney’s office.

Counsel may have a clearer path to avoiding charges through a process known as declination by walking into the Criminal Division in Washington. DOJ’s January policy revision spelled out how even companies with aggravating circumstances, such as senior executive involvement or recidivism, can earn a declination by voluntarily disclosing misconduct.

Or, defense attorneys may still benefit by reporting to a friendlier local US attorney’s office, where they may have better relationships or encounter prosecutors with less experience investigating complex corporate wrongdoing.

The nation’s 93 US attorney’s offices, however, recently issued their own partially conflicting guidelines to encourage self-disclosures by providing a presumption of no guilty plea, rather than a declination. This opens the door to harsher resolutions, such as deferred prosecution agreements, when companies disclose to a US attorney.

“Where do I go?” and “what metrics are going to be used?” are among questions companies and their counsel will wrestle with in determining whether to self-report, said Kathleen McGovern, a partner at Squire Patton Boggs and former senior deputy chief of the DOJ’s Criminal Fraud Section.

The discrepancy in new policies between US attorney’s offices and DOJ headquarters has white-collar attorneys not only balancing the pros and cons of which jurisdiction to bring a disclosure, but also whether both should be involved simultaneously. The tough calls ahead put a sharper focus on what’s long been a driving factor—which team of prosecutors offers the most predictable outcome.

Relationships Matter

Both policies dangle at least 50% fine reductions for voluntarily disclosing companies that meet additional standards, such as full remediation and cooperation. Yet defense attorneys worry that reporting possible wrongdoing could backfire.

Some are intrigued by the heightened leniency, but want to see other companies test the system and let DOJ provide concrete examples of how it’s applied.

In one sense, multiple policies on the table provide further clarity and a higher ceiling on outcomes than was previously available to corporations contemplating a voluntary disclosure, particularly those with aggravating circumstances.

The flipside, white-collar lawyers say, is the jurisdictional choices further complicate what was already a grueling decision that involves a major leap of faith.

That’s where the company lawyers’ track record and rapport with a particular DOJ office—already an important factor before the policy updates—inform the self-disclosure location.

“It’s critical to know who the players are and where” the investigation will be handled, said McGovern. “There are a lot of nuances now,” and “you need folks with the appropriate experience to figure out where you’re going to make that disclosure.”

There are other distinctions between the Criminal Division and US attorney policies beyond declination, such as on sentencing guidance, said Sheila Armbrust, a partner at Sidley Austin. That means it’s not always an either-or decision.

“If a company wanted to consider whether there were benefits of one policy over another, in addition to the benefits of knowing your local prosecutor over another, they might consider a disclosure to both,” said Armbrust, a former prosecutor with the US attorney’s office in San Francisco.

Trust Issue

Some white-collar attorneys disputed the notion that the department is inviting forum shopping and said DOJ would catch on to efforts at gaming the system.

Further, there are a variety of circumstances when a particular section of headquarters would have automatic jurisdiction, such as foreign bribery cases, or would get naturally looped in even if the company first disclosed to a US attorney’s district.

“But where that’s not necessarily going to happen, it comes down to trust,” said Nathaniel Mendell, a partner at Morrison & Foerster who was previously acting US attorney in Boston.

“You’re going to be weighing the trust and predictability you might get from experienced prosecutors in a specialized unit at Main Justice versus the trust and predictability you would have with a US attorney’s office that is sophisticated and where you would have good connections,” Mendell said.

Potential Fallout

A range of company investigations wind up getting coordinated by a US attorney’s office and a DOJ headquarters component in tandem. It’s often difficult for corporate lawyers to predict when that will happen, and their clients worry that a disclosure can set off unpredictable corollary investigations.

One long-discussed strategy could come into play for a company seeking to mitigate fallout. Even though the Criminal Division, on paper, provides a better likelihood of a declination, the business may disclose to a rural US attorney’s region that’s less equipped to take on a major white-collar matter.

Local prosecutors might be more inclined to accept the company’s internal investigation results and grant a declination—without involving Washington—former DOJ attorneys said.

“I sort of wonder, instead of disclosing to the Fraud Section or disclosing to SDNY, maybe you talk to a USAO that doesn’t do big cases like this and you might get a better result,” said Kevin Muhlendorf, a former Fraud Section supervisor who’s now a partner at Wiley Rein. “If I’m the US attorney—pick any smaller jurisdiction—and I don’t get to do a lot of corporate resolutions, maybe I give a talk or get it out there that I’m going to look at these things more leniently and you can get a better deal.”

“I know that’s not the point of the new policy,” Muhlendorf added, “but I wonder if that ends up being the result.”

Policy Application

How US attorney’s offices apply their new policy remains unclear in practice. When Deputy Attorney General Lisa Monaco promoted the nationwide consistency of the model—from Alaska to Miami—in a March 2 speech, a former senior official grilled her in response.

Former DOJ criminal division chief Leslie Caldwell, who joined Monaco on stage, said, “I’m skeptical about how that’s even possible.”

“Obviously a case that’s really big in Miami is probably unheard of in Alaska,” Caldwell said. “And a big case in Alaska may not even be brought in Miami.”

For businesses mulling whether to take advantage of DOJ’s benevolent tone, location will be a critical factor requiring a rigorous analysis.

“All of these decisions” on voluntary disclosures “are going to be highly case by case,” said Aisling O’Shea, a partner at Sullivan & Cromwell. “So I would caution against a blanket presumption that you should always go to a particular component.”