Risk & Compliance

DOJ Encouraging Self-Disclosure as Guilty Pleas in Corporate Crimes Down 70%

Only 90 guilty pleas by corporations were submitted in 2021, dropping from 304 in 2000, per a U.S. Sentencing Commission report.
DOJ Encouraging Self-Disclosure as Guilty Pleas in Corporate Crimes Down 70%
Photo: Getty Images

The Department of Justice (DOJ) is taking steps against corporate crimes, as a recent report from the sentencing commission shows a sharp decrease in guilty pleas by corporations. U.S. Deputy Attorney General Lisa Monaco and company have announced on multiple fronts that these numbers aren’t being taken lightly.

Although Monaco is fairly new in the role, appointed in April of last year, Monaco has made it clear in her short tenure that organizations that have been skating the line of legality are in for a rude awakening. 

“Companies cannot assume that they are entitled to a non-prosecution agreement or a deferred prosecution agreement, particularly when they are frequent flyers,” Monaco said while speaking at New York University about corporate criminal enforcement. “We will not shy away from bringing charges or requiring guilty pleas where facts and circumstances require. If any corporation still thinks criminal resolutions can be priced in as the cost of doing business, we have a message — times have changed.”

Two tactics the department is looking into combating the issue of enforcement are speedier trials and self-policing by corporations. While telling audience members at NYU “speed is of the essence” when it comes to trials, Monaco dedicated a large portion of her speech to the importance of self-policing.

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  Lisa Monaco

The clearest path for a company to avoid a guilty plea or an indictment is voluntary self-disclosure, Monaco said. The Department is committed to providing incentives to companies that voluntarily self-disclose misconduct to the government. In many cases, voluntary self-disclosure is a sign that the company has developed a compliance program and has fostered a culture to detect misconduct and bring it forward.

“Our goal is simple,” Monaco continued. “To reward those companies whose historical investments in compliance enable voluntary self-disclosure and to incentivize other companies to make the same investments going forward.”

The department will not seek a guilty plea when a company has voluntarily self-disclosed, cooperated, and remediated misconduct. — Lisa Monaco, U.S. deputy attorney general 

Monaco went on to talk about how components of the DOJ that pursue corporate crime must have programs that encourage self-disclosure of potential violations. If a particular component of the department doesn’t have this kind of program, the attorney general insisted they draft one. 

“The department will not seek a guilty plea when a company has voluntarily self-disclosed, cooperated, and remediated misconduct,” said Monaco. “In addition, the department will not require an independent compliance monitor for such a corporation if, at the time of resolution, it also has implemented and tested an effective compliance program.”

Making Self-Reporting a Priority

Lauren Resnick, a white-collar crime and corporate investigations partner at BakerHostetler and former federal prosecutor spoke to CFO about a stingier DOJ trying to combat an aging issue. According to her, guilty pleas are down because unlike other criminal cases, financial crimes can be worth the risk to go to trial over. 

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  Lauren Resnick

“Every juror knows that drug dealing and murder are crimes, but trials involving corporate executives often involve complex, nuanced business transactions within a larger bureaucracy,” said Resnick. “In these matters, the lines between intentional fraudulent conduct and aggressive, but good faith, business judgment can sometimes be gray. Corporate executives who recognize a guilty plea means jail and the end of their career are more willing, in some cases, to roll the dice.”

Resnick believes self-reporting is a priority for businesses that find themselves in a legal predicament. “Self-reporting is a DOJ priority, which they incentivize by giving credit for cooperation in terms of resolution and sentencing,” she said. “Apart from structured incentive programs like there are in the antitrust arena, there is no guarantee of lenience if an executive or a company is involved in substantial, pervasive misconduct of a serious nature.”

The former prosecutor stressed that any executive who comes across something that is illegal should not only report it to their higher-ups and board members but retain counsel if they report the action themselves. That will help protect them should legal action be pursued. 

“An executive who suspects or learns of misconduct should escalate promptly to company counsel or the board in the first instance,” Resnick said, “so the company can conduct a privileged internal investigation, discover what happened, and make an informed decision whether or not to self-disclose to the government.” If an executive decides to report directly to enforcement or regulatory authorities, “she should retain a lawyer to ensure her personal interests are protected during that process.”

Corporate executives who recognize a guilty plea means jail and the end of their career are more willing, in some cases, to roll the dice. — Lauren Resnick, partner at BakerHostetler

When asked about whether or not the motive of these crimes came from a general lack of enforcement, Resnick said corporate wrongdoers feel protected by their respective bureaucracies. According to her, they tend to feel invincible until it’s too late.

“There is a bit of cognitive dissonance,” said Resnick. “[Executives] tend to feel insulated within their bureaucratic environments, they may view the rules of the game as gray even when they are not, and may not have had direct exposure to law enforcement before. But, I can assure you, once the DOJ comes knocking, the anxiety of navigating a criminal investigation, with the specter of prison and career-ending outcomes, is very scary.”

“Companies should get their compliance programs in top shape now before DOJ comes knocking,” Resnick continued. She insists compliance should be looked at as a “key business initiative” with proactive initiatives like controls, training, data analytics, and monitoring to catch misconduct in its early stages. According to her, a combination of accurate data and honest communication within an organization is the greatest defense against a detrimental legal situation. 

“Books and records must be accurate and transparent, and employees should be incentivized in their performance evaluations and compensation to escalate issues of concern,” Resnick said. “Things will happen because people run businesses, but a company with a strong compliance program and culture will be in a better position to negotiate lenience from DOJ if and when a problem arises.”

Investing in Compliance

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  Michele Edwards

In this overhaul of the way the department pursues cases, executives across the board may begin to have more questions than answers. Michele Edwards, partner at StoneTurn, a global advisory firm that assists companies, their counsel, and government agencies on things such as regulatory, risk, and compliance issues, told CFO this is a great opportunity for companies to gauge how compliant they actually are. 

“The latest guidance from the DOJ provides an unprecedented reminder for corporations to invest in compliance,” said Edwards. “There are multiple scenarios any corporation may be in right now, and no matter which scenario, corporations should embrace this as an opportunity to assess and test the effectiveness of their compliance programs.”

If an organization is currently under investigation or committing acts that could get them there, Edwards spoke about how these companies are on the clock before justice comes bearing down on them. 

The latest guidance from the DOJ provides an unprecedented reminder for corporations to invest in compliance. — Michele Edwards, partner at StoneTurn

“Corporations under investigation need to act fast, particularly if preparing for settlement discussions with the government,” said Edwards. “Corporations need to assess the effectiveness of their compliance program when the misconduct occurred and focus on demonstrating that the remedial actions they have taken to address the misconduct have been implemented and are operating effectively.”

The best way for an organization to self-disclose before getting busted is to be proactive in their approach to disclosure. If a corporation is lackadaisical in its approach to its disclosures, consequences will come about. 

“The recent settlement agreements in 2022 announced by the DOJ, for example, while fact and circumstance specific, demonstrate the DOJ is placing heavy scrutiny on the status and effectiveness of a corporation’s remedial efforts, and when not fully implemented or tested, the imposition of a corporate monitor is likely,” said Edwards.