U.S. attorneys for the Southern District of New York and for the Eastern District of New York Damian Williams and Breon Peace recently announced a new policy that sets national standards for when corporations will receive credit and benefits for self-reporting misconduct to a United States Attorney’s Office (USAO).
The new “United States Attorney’s Offices’ Voluntary Self-Disclosure Policy,” which was unveiled on February 22, 2023, and took immediate effect, sets new criteria for a company to be considered to have made a voluntary self-disclosure (VSD) of misconduct to a USAO, which may enable companies to limit potential criminal liability. The new policy follows a memorandum issued by the United States Deputy Attorney General Lisa Monaco in September 2022, directing components of the U.S. Department of Justice (DOJ) that prosecutes corporate crime to develop and publish such a policy and highlighting the DOJ’s emphasis on prosecuting corporate crime.
It also follows the United States Sentencing Commission’s August 2022 report entitled, “The Organizational Sentencing Guidelines: Thirty Years of Innovation and Influence,” which stated: “The organizational sentencing guidelines have wielded significant influence on corporate America. Chapter Eight was designed to incentivize corporate self-policing through its ‘carrot and stick’ philosophy and it has ‘catalyzed rigorous efforts by companies to promote ethical performance and reduce organizational misconduct.’”
According to a statement from Williams, chair of the Attorney General’s Advisory Committee (AGAC), and Peace, chair of the AGAC white collar fraud subcommittee, the goal of the new VSD policy is to “standardize” how VSDs are defined and credited, and to “incentivize companies to maintain effective compliance programs capable of identifying misconduct, expeditiously and voluntarily disclose and remediate misconduct, and cooperate fully with the government in corporate criminal investigations.” Here are the key points of the new VSD policy.
Standards for Voluntary Self-Disclosure
Under the policy, whether or not a disclosure will be considered a VSD will be made by a USAO based on an assessment of the circumstances on a “case-by-case basis” and at the “sole discretion of the USAO.” However, disclosures must meet the following standards to qualify:
The disclosure must be made “voluntarily” by a company where there is no preexisting obligation to disclose pursuant to a contract, law, regulation, or a prior resolution with the DOJ.
The disclosure must be made: (a) “prior to an imminent threat of disclosure or government investigation” as defined by the United States Sentencing Guidelines; (b) “prior to the misconduct being publicly disclosed or otherwise known to the government”: and (c) “within a reasonably prompt time after the company” becomes aware of the misconduct. The burden of demonstrating timeliness is on the company.
The disclosure “must include all relevant facts concerning the misconduct that are known to the company at the time of disclosure.” The policy states that companies should make it clear when a disclosure is based on a preliminary investigation.
Benefits for Making a Voluntary Self-Disclosure
According to the policy, unless there is some “aggravating factor,” the USAO will not seek a guilty plea when a company has: (1) voluntarily self-disclosed according to the new criteria; (2) “fully cooperated;” and (3) “timely and appropriately remediated the criminal conduct.” Aggravating factors include but are not limited to a form of misconduct that “poses a grave threat” to national security, public health, or the environment, is “deeply pervasive throughout the company,” or the misconduct involves the current executive management.
The policy states that the USAO may choose not to seek any criminal penalty against a company when it “fully meets” the standards for making a VSD. But “in any event,” when a company “fully meets” the VSD policy, the policy states that the USAO will not seek a penalty that is greater than 50 percent of the low end of the Sentencing Guidelines range.
Further, according to the policy, the USAO will not require an independent compliance monitor for companies that make a qualifying VSD, fully cooperate, and remediate the criminal misconduct, if they additionally demonstrate that they have instituted an “effective compliance program” in accordance with the September 2022 Monaco Memorandum.
The DOJ under the Biden administration has made it clear that investigating and prosecuting corporate crime is a priority. The new VSD policy sets compliance standards that companies must meet to receive credit for self-reporting misconduct to federal authorities. In some circumstances, if the standards are met, there is full cooperation with prosecutors, and misconduct is remediated, companies may be able to limit or prevent criminal penalties. The goal of the VSD policy is to incentivize companies to maintain effective compliance programs and conduct internal investigations to reveal potential misconduct that if not otherwise discovered and disclosed could to lead to criminal penalties. Companies may want to consider reviewing their compliance programs and investigation procedures to ensure their effectiveness.
Ogletree Deakins’ Ethics Compliance and Whistleblower Response and Workplace Investigations and Organizational Assessments practice groups will continue to monitor developments within these practice areas and will post updates to the firm’s Ethics / Whistleblower and Workplace Investigations and Organizational Assessments blogs. Important information for employers is also available via the firm’s webinar and podcast programs.