In recent weeks, the Department of Justice has released key guidance in the form of a memorandum from Attorney General Garland regarding charging, pleas, and sentencing, in addition to an updated Corporate Enforcement Policy from DOJ’s Criminal Division. These updates have important ramifications in the white collar context and companies are encouraged to review them and understand their mandates. This blog post summarizes both updates and sets forth considerations that companies should keep in mind to ensure that they have best practices in place and are adequately prepared to navigate potential negotiations with the government.

On December 16, 2022, United States Attorney General Merrick Garland issued two related memoranda (collectively, the “Garland Memo”) which provide guidance to federal prosecutors regarding department policies for charging, pleas, and sentencing. Following publication of the Garland Memo, on January 17, 2023, Assistant Attorney General for the DOJ’s Criminal Division Kenneth Allen Polite Jr. announced important revisions to the Criminal Division’s Corporate Enforcement Policy (the “CEP”), which alter how it will evaluate corporate criminal matters.^[1]

This blog post summarizes key aspects of the Garland Memo, explains how its directives depart from or build upon the guidance of previous administrations, and highlights some potential advantages applicable to white collar defendants. Furthermore, it explains how the updated CEP provides new incentives for white collar defendants, while stressing the importance of voluntarily self-disclosing misconduct, fully cooperating with the government, and timely and appropriately remediating.

In the corporate context, these Biden-era policy revisions largely represent a return to policies initiated during the Obama administration aimed at providing increased transparency to companies that self-discover wrongdoing about how the DOJ will come to view their post-discovery actions and decisions. From the initial introduction of those policies, the government has sought to increase self-reporting through a series of carrots and sticks. It largely has not worked as the government had hoped and companies have continually opted to finish internal investigations and await a subpoena rather than rush to disclose in hopes of leniency.

These new policies reflect further steps in the right direction, with concrete rewards for companies that disclose, cooperate, and remediate quickly. There is also a continued and increased focus on individual accountability and a policy of ensuring that any individuals who directed or participated in wrongdoing are prosecuted. When charging decisions are ultimately being made, white collar defendants may benefit from an appeal to the new and more holistic approach set forth in the Garland Memo. However, there remain many unknowns and gray areas that can impact how these policies will be applied.

Overall, these new policies offer real opportunities for negotiation if wrongdoing is detected. But for most companies, their importance is in the guidance they provide regarding what can be done proactively to create a robust culture of compliance, through training, swift internal detection mechanisms, and a genuine tone at the top, all of which will be meaningful to a prosecutor in evaluating a company’s wrongdoing and deservedness of leniency.

1. The Garland Memo

While much of the commentary about the Garland Memo has focused on the move to end sentencing disparities between crack and powder cocaine, there are also interesting implications for white collar defendants applicable at the time of charging, during plea negotiations, and at sentencing, that should not be overlooked.

Charging Decisions

Most prominently, the Garland Memo reflects a holistic approach to charging decisions. It emphasizes that when determining whether initiating a prosecution will serve a substantial federal interest, prosecutors should weigh all relevant considerations, which include:

federal law enforcement priorities; the nature and seriousness of the offense; the deterrent effect of prosecution; the person’s culpability in connection with the offense; the person’s history with respect to criminal activity; the person’s willingness to cooperate in the investigation or prosecution of others; the person’s personal circumstances; the interests of any victims; and the probable sentence or other consequences if the person is convicted.

When selecting appropriate charges, the Garland Memo further stresses to prosecutors the importance of proportionality—whether the consequences of the charges they select will yield a result which is proportional to the seriousness of the defendant’s conduct. The process of selecting charges must be informed by an “individualized assessment of all the facts and circumstances of each particular case.”

The Garland Memo serves as a reminder that additional charges need not be added, simply because they can be proven, if doing so would create a disproportionate result. This directive could have a profound impact in the white collar space, where numerous broadly applicable offenses exist that can often capture, and criminalize, the defendant’s conduct, including mail fraud, wire fraud, money laundering, and others. In negotiations, defense counsel may now cite to the Garland Memo as a reminder that numerous charges need not be tacked on in a way that is clearly more than “sufficient” to achieve the prosecutorial ends of “punishment, protection of the public, specific and general deterrence, and rehabilitation.”

The Garland Memo’s charging directives contrast significantly from those announced during the Trump administration. Prior DOJ guidance from May 10, 2017 emphasized charging and pursuing “the most serious, readily provable offense.” By definition, this required prosecutors in the first instance to select offenses “that carry the most substantial guidelines sentence, including mandatory minimum sentences.” In other words, where multiple offenses could be appropriately charged in response to a defendant’s alleged conduct, prosecutors were directed to charge the offense which would carry the most severe recommended sentence. The practical implications of this charging tactic alone had the power to induce plea agreements from risk-averse white collar defendants.

In January 2021, the Biden DOJ rescinded this directive in the form of interim guidance published by then Acting Attorney General Monty Wilkinson. The interim guidance noted “the importance of making careful, case-specific assessments as to what matters to investigate, which charges to bring, when to enter into plea agreements, and how to advocate at sentencing.” The guidance aimed to ensure that prosecutorial decisions are “based on the merits of each case” and constitute “an individualized assessment” of the relevant facts. The Garland Memo serves as a natural continuation of the interim guidance, cementing a departmental approach that advocates for a holistic evaluation of the defendant’s circumstances. When appropriate, this approach may result in more leniency, and it signals a clear softening of the Trump administration’s rigid principles.

The Garland Memo observes that the standard of pursuing “the most serious offense that is encompassed by [the defendant’s] conduct and that is likely to result in a sustainable conviction” was originally adopted in 1980 before the proliferation of mandatory minimum sentences that accompany many federal offenses in the modern era. Today, the number of provisions carrying mandatory minimums “has often caused unwarranted disproportionality in sentencing and disproportionately severe sentences.”

Charges that carry a mandatory minimum sentence should thus be reserved for instances where the remaining charges would not sufficiently reflect important considerations such as the seriousness of the defendant’s conduct and the danger he or she poses to the community. Significantly, any decision to include a charge that carries a mandatory minimum must receive supervisory approval. Moving forward, DOJ intends to implement a software program that will track the reporting of all charges which include mandatory minimums across all districts and litigating divisions. In the meantime, United States Attorney’s Offices and litigating divisions will be required to report the number and percentage of both charging documents and plea agreements which include charges carrying mandatory minimums. Given the time and effort required to obtain approval, and the institution of a data-tracking mechanism across districts, prosecutors will now be incentivized to think twice about whether a charge carrying a mandatory minimum is truly necessary.

The Garland Memo further lays out impermissible considerations for prosecutors when determining whether to commence a prosecution. Notably, it informs them that “[c]harges may not be filed, nor the option of filing charges raised, simply to exert leverage to induce a plea.” While certain corporate defendants have the ability to pay massive fines in order to avoid the uncertainty that accompanies defending against a federal prosecution, the Garland Memo dissuades prosecutors from filing charges solely to reap the benefits of a likely settlement.

Overall, recognizing a multitude of options at the charging stage coupled with the power of the modern-day sentencing regime, the Garland Memo provides that charging decisions must be informed by an individualized assessment of all the facts and circumstances that a particular case presents. It is perhaps unsurprising that Attorney General Garland, a former federal judge well familiar with the factors which must ultimately be considered at sentencing under 18 U.S.C. § 3553(a), has signaled to prosecutors they should conduct a holistic analysis of a defendant at the earliest possible stages of prosecution. By its very nature, this comprehensive approach may provide the more sophisticated white collar defendant, often a first-time offender, with additional tools for negotiation.

Plea Agreements

The Garland Memo makes clear that plea agreements shall be subject to “the same fundamental considerations described above for charging decisions” and reemphasizes that charges cannot be filed for the purpose of exerting leverage to induce a plea. Awareness of this mandate will likely prove helpful to white collar defendants attempting to engage in reasoned pretrial negotiations, who will be empowered, when necessary, to remind prosecutors that overly aggressive charging decisions which do not serve the ends of justice are contrary to departmental guidance. Districts and litigating divisions will also be required to promulgate written guidance stating the standard elements required in their plea agreements.

Moving forward, white collar defendants will have the opportunity to appeal to the multitude of factors and considerations outlined in the Garland Memo from the time of their earliest plea discussions. It therefore makes sense for defense counsel to understand the entire picture regarding their client’s circumstances as early as possible, in order to persuasively convey a holistic overview to prosecutors. If navigated effectively, this has the potential to result in more lenient pleas than seen in recent years.  

Sentencing Recommendations

While prosecutors are guided by the 18 U.S.C. § 3553(a) factors when recommending an appropriate sentence, the Garland Memo issues a reminder that they should seek sentences which are sufficient “but not greater than necessary” to meet their statutory objectives. In this respect, it again underscores the importance of making sentencing recommendations that are “based on an individualized assessment of the nature and circumstances of the offense and the history and characteristics of the defendant.”

At sentencing, prosecutors must “fully and accurately alert the court to all known relevant facts and criminal history” in addition to outlining why the interests of justice support their recommendations. Recommendations for upward departures and variances must be approved by a supervisor.

While the prior administration’s May 10, 2017 guidance observed that prosecutors should seek a reasonable sentence under 18 U.S.C. § 3553 and directed them to “disclose to the sentencing court all facts that impact the sentencing guidelines or mandatory minimum sentences,” the Garland Memo’s new language regarding seeking sentences which are not greater than necessary to meet prosecutorial ends may lead to more thoughtful and involved negotiations with the defense bar.

Immediate Next Steps

The Garland Memo states that the Deputy Attorney General will oversee implementation of the principles set forth therein and “issue further guidance as appropriate.” This effort will include a review of the Justice Manual “to conform its provisions to the policies set forth” in the Garland Memo.

It will therefore be important to stay tuned for future updates that clarify these principles, or even serve as a further extension of them, in the coming months.

Key Takeaways

• The Garland Memo presents a softening of DOJ principles announced under the Trump administration with respect to charging decisions, plea agreements, and sentencing recommendations.    

• The holistic and individualized approach set forth in the Garland Memo should provide white collar defendants additional opportunities to negotiate with federal prosecutors.

• Expect future guidance that may further clarify or even serve as an extension of the Garland Memo’s principles.

2. Criminal Division Revises CEP

Shortly after the issuance of the Garland Memo, Assistant Attorney General Polite announced significant updates to the Criminal Division’s CEP, once applicable only in the FCPA context and formerly known as the FCPA Corporate Enforcement Policy. These changes mark the first set of major revisions since 2017, and they augment certain principles outlined in Deputy Attorney General Lisa Monaco’s September 2022 memorandum regarding corporate criminal enforcement. The updated CEP reverts closely back to the Obama-era guidance under then Deputy Attorney General Sally Yates, but with several experience-driven revisions and enhancements.

Of note, the CEP’s directives are now more broadly applicable than ever before. The CEP makes clear that its scope extends beyond FCPA cases to all corporate criminal matters handled by DOJ’s Criminal Division. As summarized below, the CEP then outlines multiple new incentives for corporate defendants, but it underscores the importance of unwavering cooperation as a prerequisite to receiving them.

Criteria for a Presumption of Declination

The CEP sets forth that, absent aggravating circumstances involving the seriousness of an offense or the nature of an offender, there will be a presumed declination, which is an exercise of governmental discretion to not bring charges, for companies that 1) voluntarily self-disclose their misconduct to the DOJ, 2) fully cooperate, and 3) timely and appropriately remediate.^[2] This incentive is consistent with the former iteration of the CEP.^[3]  

The considerations underlying this presumption are extended to the M&A and successor liability context. The CEP explains that the presumption of a declination is also appropriate where a company undertakes a merger or acquisition and uncovers misconduct through timely due diligence, or post-acquisition audits or compliance integration efforts, and then proceeds to self-disclose the misconduct and follow the CEP’s requirements. 

Consideration of Aggravating Circumstances

Significantly, in cases where aggravating circumstances are present, the CEP now creates a potential pathway to a declination. It explains that while the presence of aggravating circumstances, such as executive involvement, defeat the presumption of a declination, prosecutors may still find a declination appropriate where the company demonstrates it has satisfied each of the following conditions:

• the company makes a voluntary self-disclosure immediately upon becoming aware of the alleged misconduct;

• the company had an effective compliance program and system of internal accounting controls at the time of misconduct and disclosure, which allowed for identification of the misconduct and led to self-disclosure; and

• the company exhibited “extraordinary” cooperation and remediation.

In other words, while aggravating circumstances do not foreclose the possibility of a declination, the bar to obtain one is high and remains unsettled. Further clarification regarding what exactly constitutes “extraordinary” cooperation and remediation will likely come in the form of future resolutions, which will act as helpful case studies for astute companies.

The CEP further explains that the presence of voluntary self-disclosure, full cooperation, and timely and appropriate remediation carry benefits even in instances where a criminal resolution is warranted.

In such cases, the Criminal Division “will accord, or recommend to a sentencing court, at least 50% and up to a 75% reduction off of the low end of the U.S. Sentencing Guidelines (U.S.S.G.) fine range, except in the case of a criminal recidivist, in which case a reduction of at least 50% and up to 75% will generally not be from the low end of the U.S.S.G. fine range[.]” While the CEP was published just one month after the Garland Memo, these reductions are clearly consistent with the Garland Memo’s overarching sentencing guidance, and are more generous than the previous iteration of the CEP, which allowed for a maximum reduction of 50%. In terms of form, resolutions “will generally not require a corporate guilty plea—including for criminal recidivists—absent the presence of particularly egregious or multiple aggravating circumstances[.]”

Corporate monitors will not be required for companies who demonstrate they have implemented and tested an effective compliance program and remediated the root cause of misconduct at the time of resolution. But the CEP makes clear that a corporate compliance program which is merely a paper tiger will not withstand the exacting level of scrutiny DOJ applies. Evaluating and enhancing compliance systems is an immediate step companies can take to maximize their leverage in future negotiations.

The Absence of Voluntary Self-Disclosure

Companies that fail to voluntarily self-disclose, but then fully cooperate and timely and appropriately remediate, may still receive limited credit. In such circumstances, the DOJ will recommend to the sentencing court “up to a 50% reduction off of the low end of the U.S.S.G. fine range, except in the case of a criminal recidivist, in which case the reduction of up to 50% will generally not be from the low end of the U.S.S.G. fine range.” This is also more generous than the prior iteration of the CEP, which allowed for a maximum reduction of 25%.

In his remarks, however, Assistant Attorney General Polite clarified that “each and every company starts at zero cooperation credit and must earn credit” based on the factors outlined in the CEP. A 50% reduction “will not be the new norm” and such a reduction “will be reserved for companies that truly distinguish themselves and demonstrate extraordinary cooperation and remediation.”

As of this writing, and despite various incremental attempts by the DOJ to sweeten the deal, very few companies have been willing to risk the uncertainty of availing themselves of these incentives for self-disclosing wrongdoing. There will be opportunities for companies so-willing to reap those benefits, which will serve as examples of how self-disclosure can be rewarded. But thus far, the risks seem to have outweighed the possible rewards.

Key Takeaways

• The CEP now has broader applicability and companies who were not previously familiar with its requirements should quickly evaluate them and perform a risk/reward analysis in light of the specific facts at issue.

• The CEP is more forgiving in key respects, particularly in terms of sentencing recommendations, but that leniency is largely conditioned on a defendant’s demonstrated and unwavering commitment to cooperation and identification of all individuals involved in violations.

• While future resolutions and guidance will help define the contours of what constitutes “extraordinary” cooperation and remediation, one clear step that companies can, and should, take right now is a comprehensive evaluation of their compliance systems.

The Garland Memo can be accessed in full by clicking here and here. The CEP can be accessed here.

FOOTNOTES

[1] While the CEP only explicitly applies to the Criminal Division, white collar defendants will likely still benefit from familiarizing themselves with its principles and citing the policy, as needed, during negotiations with individual U.S. Attorney’s Offices.

[2] The CEP includes a detailed definitions section which further explains the requirements for voluntary self-disclosure, full cooperation, and timely and appropriate remediation.

[3] Deputy Attorney General Lisa Monaco’s September 2022 memorandum also highlighted the importance of these factors. That guidance expanded upon a previous October 2021 memorandum emphasizing that, to qualify for cooperation credit, corporations must provide DOJ with all relevant facts relating to the individuals responsible for the misconduct. The updated CEP remains consistent with these memoranda and requires information related to all individuals involved in the misconduct as a prerequisite to receiving credit for voluntary self-disclosure and full cooperation. Additional Mintz analysis on the October 2021 memorandum is available here.  

Nick A. LaPalme also contributed to this article.