Two months ago, the U.S. Department of Justice (DOJ) updated its guidance to aid federal prosecutors in making charging decisions or, later, sentencing decisions. This guidance makes clear that the adequacy of a company’s compliance program can significantly influence whether or not the government will bring charges against the company for alleged misconduct or may be willing to resolve the potential violation through a deferred prosecution or non-prosecution agreement.

Corporate officers and counsel need to be aware of this DOJ guidance in order to increase their chances of winning a deferred prosecution agreement or a non-prosecution agreement if their company runs afoul of federal criminal law.

The Evolution of DOJ’s Views

The 2020 update is the latest step in the DOJ’s formalization of its views on the significance of corporate compliance programs. In 2017, the DOJ issued a guidance document on how to evaluate corporate compliance programs, which was first updated in April 2019 and now again this year. Each of these updates is part of the DOJ’s efforts to better harmonize the guidance with other agency guidance and standards.[1]

“Effective compliance programs play a critical role in preventing misconduct, facilitating investigations, and informing fair resolutions,” Assistant Attorney General Brian Benczkowski said in releasing last year’s updates.

The Justice Manual for federal prosecutors describes specific factors that prosecutors should consider in conducting an investigation of a corporation, determining whether to bring charges, and negotiating plea or other agreements. These factors now include “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging decision” and the corporation’s remedial efforts “to implement an adequate and effective corporate compliance program or to improve an existing one.”

Be Prepared to Answer Three Fundamental Questions

Prosecutors must consider the company’s size, industry, geographic footprint, regulatory landscape, and other factors, both internal and external to the company’s operations, which might impact its compliance program. But there are common questions that they will ask in the course of making an individualized determination. Here are three “fundamental questions” a prosecutor should ask:

1. Is the corporation’s compliance program well designed?

2. Is the program being applied earnestly and in good faith? (In other words, is the program adequately resourced and empowered to function effectively?)

3. Does the corporation’s compliance program work in practice?

Each of these fundamental questions can only be answered by the prosecutor’s asking a dozen or so more detailed subordinate questions.

• To answer the question about the compliance program’s design, for example, the DOJ guidance identifies a host of detailed topics that prosecutors are expected to scrutinize, including the company’s risk assessment approach, written compliance policies and procedures, training and communications with employees, confidential internal reporting structure and investigation, and due diligence with respect to third-party partners or vendors,

• To answer the question about the adequacy of the company resources devoted to compliance, for example, prosecutors will look at the commitment of senior and middle management to creating and fostering a culture of ethics and compliance, the autonomy and resources of the compliance structure, and establishment of incentives for compliance (and disincentives for non-compliance).

• To evaluate the question of how the program works “in practice,” prosecutors should consider whether and how the misconduct was detected, what investigation resources were in place to investigate suspected misconduct, and the nature and thoroughness of the company’s remedial efforts.

The DOJ guidance recognizes that many companies operate in complex regulatory environments that are outside the normal experience of criminal prosecutors. For example, financial institutions such as banks, subject to the Bank Secrecy Act statute and regulations, require prosecutors to conduct specialized analyses of their compliance programs in the context of their anti-money laundering requirements.

For the companies themselves, it is imperative to develop effective compliance programs that address each of the state or federal regulatory schemes to which they are subject.

Reevaluate Your Compliance Programs

The DOJ’s updated guidance on corporate compliance programs reflects a conscious effort by the agency to be both tougher and more transparent. So this is a good opportunity for companies to reevaluate their compliance programs and be prepared to help answer the DOJ’s three “fundamental” questions in any future criminal investigation of their conduct.

Footnotes

[1] In July 2019, the DOJ’s Antitrust Division brought itself into harmony with the DOJ Criminal Division when it issued its own policy for incentivizing antitrust compliance in “Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations” (July 2019). Assistant Atty. Gen. Makan Delrahim stated: “For the first time, the Division will consider compliance at the charging stage in criminal antitrust investigations.”