New—and Vague—Incentives for Companies to Self-Report and Cooperate in DOJ Criminal Investigations

By: Matthew Palmer-Ball

In September 2022, the U.S. Department of Justice (“DOJ”) announced new guidance for federal prosecutors investigating corporate misconduct.  We previously wrote about significant changes in that guidance here.   Now, DOJ Assistant Attorney General Kenneth Polite, who oversees the Criminal Division, has announced new potential incentives for corporate entities to voluntarily self-disclose wrongdoing by the entities or their employees, cooperate with government investigations, and implement effective compliance programs.  Our editorial emphasis on “potential” stems from ambiguities in Polite’s announcement.  Consistent with DOJ policies that have dogged corporate actors for decades, these most recent incentives come with uncertainty about how to achieve them.

Declination of Prosecution Even with Aggravating Circumstances:

Under prior DOJ policies, corporate entities that voluntarily disclosed criminal wrongdoing could not obtain a declination of prosecution from the government if aggravating circumstances were present—an obvious disincentive for self-disclosure.  Some such aggravating circumstances “include, but are not limited to, involvement by executive management of the company in the misconduct; a significant profit to the company from the wrongdoing; egregiousness or pervasiveness of the misconduct within the company; or criminal recidivism.”  But now DOJ will allow self-disclosing corporations to receive declinations despite aggravating circumstances as long as they meet three factors:

  • “The voluntary self-disclosure was made immediately upon the company becoming aware of the allegation of misconduct;
  • At the time of the misconduct and the disclosure, the company had an effective compliance program and system of internal accounting controls that enabled the identification of the misconduct and led to the company’s voluntary self-disclosure; and
  • The company provided extraordinary cooperation with the Department’s investigation and undertook extraordinary remediation.”

Incentives where Declination Unavailable:

Additionally, even if DOJ does not offer a declination and instead demands a penalty, DOJ will:

  • Recommend a criminal fine that is between a 50-75% reduction from the low end of the U.S. Sentencing Guidelines range (formerly, the maximum reduction was 50%) unless the corporation is a recidivist; and
  • “[G]enerally not require a corporate guilty plea—including for criminal recidivists—absent multiple or particularly egregious aggravating circumstances.”

Incentives without Self-Disclosure:

Even if a corporation does not self-disclose a violation that later becomes part of a government investigation, as long as it “fully cooperate[s] and timely and appropriately remediate[s]” the wrongdoing, DOJ will now recommend up to a 50% reduction off the low end of the Guidelines fine range—that 50% cap is double what it used to be.

Ambiguity in Application:

Certainly, these enhanced incentives could persuade some entities to self-disclose wrongdoing in their companies.  Yet there is uncertainty over what will be necessary to earn those incentives.  They hinge on undefined terms such as “immediately,” “extraordinary,” and “particularly egregious.”  And AAG Polite, in his remarks, essentially deferred to prosecutors’ discretion to define them, remarking that DOJ “call[s] it like [they] see it,” and going on to say, “[W]e know ‘extraordinary cooperation’ when we see it, and the differences between ‘full’ and ‘extraordinary cooperation are perhaps more in degree than kind.  To receive credit for extraordinary cooperation, companies must go above and beyond the criteria for full cooperation set in our policies—not just run of the mill, or even gold-standard cooperation, but truly extraordinary.”  (emphasis added).  Corporate entities will be forgiven if those turns of phrase leave their concerns unanswered.

On balance, though, this announcement most likely makes self-disclosure and cooperation more attractive in general—it enhances incentives for compliance while imposing no new penalties for non-compliance.  Moreover, this does not change DOJ’s proven track record of rewarding companies with the strongest incentives when they self-report violations, cooperate with government investigations, have effective compliance programs, and fully remediate wrongdoing.  The same goes for DOJ’s long track record of offering little or no incentives to companies that fall short in those efforts.  AAG Polite called to mind three recent examples in his speech (Balfour Beatty Communities, Bank of Nova Scotia, and Glencore).  The ambiguous terms of these new policies will come into form over time as DOJ applies them to actual cases.  In the meantime, DOJ is offering a new carrot to go with the same old stick.

Matthew R. Palmer-Ball

Matt Palmer-Ball is a seasoned trial attorney and former federal prosecutor. He concentrates his practice in the areas of complex commercial litigation, white collar crime, and internal and government investigations. Prior to joining Wyatt, Matt served as a Trial Attorney with the U.S. Department of Justice’s Public Integrity Section and as an Assistant U.S. Attorney for the District of Columbia. Read more.

Matthew R. Palmer-Ball
Matt Palmer-Ball is a seasoned trial attorney and former federal prosecutor who concentrates his practice in the areas of litigation, white collar crime, internal and government investigations, and corporate compliance.  Matt advises businesses, non-profits, boards of directors, fiduciaries, and individuals, who seek out Matt’s deep trial experience in a range of high-stakes disputes and his prior government service in all types of investigations.  Prior to joining Wyatt, Matt served as a Trial Attorney with the... Read More