On March 3, 2023, as part of the rollout of several updates to its guidance on corporate compliance programs, the Department of Justice (DOJ) released a new policy aimed at incentivizing compliance-driven compensation and bonus plans as part of its enduring priority of combating corporate crime. The DOJ described the policy as part of its continued efforts to prevent misconduct before it happens, hold individual wrongdoers accountable, and deter and punish recidivism. As part of the new policy, the DOJ has launched the first-ever Pilot Program Regarding Compensation Incentives and Clawbacks. The three-year Pilot Program consists of two parts. First, the DOJ Criminal Division will require that every corporate resolution include a requirement that the company develop compliance-promoting criteria within its compensation and bonus systems. Second, the Pilot Program will provide for fine reductions to companies that seek to claw back corporate compensation from wrongdoers.

Senior DOJ officials, including Deputy Attorney General Lisa Monaco and Assistant Attorney General for the Criminal Division Kenneth Polite, discussed the new compensation Pilot Program and several other recent policy changes, including new guidance on the use of personal devices and communications platforms, the DOJ’s newly expanded Corporate Enforcement Policy, and an ongoing focus on corporate crime and national security, at the American Bar Association (ABA) National Institute on White Collar Crime this week.

Compensation Policy Change and Pilot Program

The DOJ’s new policy on compensation has been incorporated into the DOJ’s Evaluation of Corporate Compliance Programs (ECCP). The ECCP notes that a “hallmark of effective implementation of a compliance program is the establishment of incentives for compliance and disincentives for non-compliance” and advises prosecutors to “assess whether the company has clear consequence management procedures (procedures to identify, investigate, discipline and remediate violations of law, regulation, or policy) in place, enforces them consistently across the organization, and ensures that the procedures are commensurate with the violations.” It further states that prosecutors “should also assess the extent to which the company’s communications convey to its employees that unethical conduct will not be tolerated and will bring swift consequences, regardless of the position or title of the employee who engages in the conduct.”

Monaco explained that the new policy is intended to “shift the burden away from uninvolved shareholders and onto those more directly responsible.” 

In addition to the changes to the ECCP, the policy will be implemented through the Pilot Program, which Polite described as a three-year initiative, during which the DOJ will gather data and assess the program’s effectiveness.

Monaco and Polite explained how the program will operate in practice, noting that at the time of a resolution, the company will pay the applicable fine minus the amount the company is trying to claw back from culpable executives or employees. If the company succeeds and recoups compensation, the company will be able to keep the compensation it was able to recover and benefit from the reduced fine. 

They noted that in evaluating whether a company is eligible for a fine reduction, the DOJ will look for good faith efforts to claw back compensation from individuals involved in misconduct and supervisors with knowledge, whether actually aware of the misconduct or willfully blind to it. Even if the company is not successful in clawing back compensation, it may be eligible for a fine reduction of up to 25 percent of the compensation that it sought to recover if it can demonstrate good faith efforts to do so.

Monaco stated that the policy is intended “to encourage companies to retool their compensation programs and get ahead of the curve” and described the policy as part of the DOJ’s efforts to combat corporate crime by preventing it or surfacing it early. She also noted that she hopes companies will see the new policy as another incentive to invest in robust compliance programs with forward-leaning compensation systems.

Monaco cited the Danske Bank resolution in December 2022 as an indication that the program has already made its debut, because as part of its plea agreement, Danske Bank agreed to revise its performance review and bonus systems to include criteria relating to compliance. Specifically, the Danske Bank plea agreement includes a provision that the bank will “implement evaluation criteria related to compliance in its executive review and bonus system so that each Bank executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with the Compliance Programs and applicable laws and regulations” and a “failing score in compliance will make the executive ineligible for any bonus that year.” The Danske Bank provision relating to compensation may provide a model for future corporate resolutions in this area. 

Polite also mentioned the recent declination granted to Safran SA as an example of the policy in action. He noted that the company’s remediation included the withholding of compensation of deferred compensation.

The DOJ’s focus on compliance and clawbacks forms part of a broader multiagency effort in this area. In particular, the DOJ’s policy aligns with recent efforts by the Securities and Exchange Commission (SEC) to seek compensation clawbacks from senior executives when their companies have to reissue an accounting statement because of misconduct, regardless of whether an executive participated in misconduct or indeed was even aware of it. Using a more expansive interpretation of Section 304 of the Sarbanes-Oxley Act, the SEC has recently begun to pursue more aggressively the return of certain bonus and incentive-based compensation from public company chief executive officers and chief financial officers under such circumstances. Also speaking at the ABA Conference, Gurbir Grewal, Director of the SEC’s Division of Enforcement, signaled this continued use of clawbacks to ensure the CEOs and CFOs are committed to ethics and compliance in their organizations.

This new DOJ Pilot Program is intended to incentivize companies to shift the burden of fines from shareholders to culpable executives, allowing companies in DOJ criminal resolutions to benefit both directly by clawing back the compensation amounts and by reducing the fines they pay. However, companies can face many obstacles to clawing back such compensation—including incurring legal fees that may far exceed the clawed-back amount—so it remains to be seen how effective this policy will be. 

Communication Devices Guidance

The revised ECCP also includes new guidance with respect to the use of personal devices and communications platforms, including those offering ephemeral messages, which Polite also described in his speech.  

Under the new ECCP, prosecutors are advised to “consider a corporation’s policies and procedures governing the use of personal devices, communications platforms, and messaging applications, including ephemeral messaging applications.” The ECCP states that “[p]olicies governing such applications should be tailored to the corporation’s risk profile and specific business needs and ensure that, as appropriate and to the greatest extent possible, business-related electronic data and communications are accessible and amenable to preservation by the company.” As with the compensation-related guidance, the policy encourages prosecutors to “consider how the policies and procedures have been communicated to employees, and whether the corporation has enforced the policies and procedures on a regular and consistent basis in practice.”

In announcing the guidance, Polite noted that during an investigation, if a company has not produced communications from third-party messaging applications, prosecutors will not accept companies’ representations at face value and will ask questions about the company’s ability to access such communications, whether they are stored on company devices or servers, and applicable privacy and local laws. “A company’s answers—or lack of answers—may very well affect the offer it receives to resolve criminal liability,” Polite stated. Polite stated that companies with “bring your own device” policies are not exempt from this guidance.

Voluntary Self-Disclosure

Senior DOJ officials also used the ABA conference as an opportunity to promote the recent changes to the Criminal Division’s Corporate Enforcement Policy and the adoption of a voluntary self-disclosure policy by every US Attorney’s Office across the country. Both Monaco and Principal Associate Deputy Attorney General Marshall Miller emphasized that, in an effort to promote transparency and consistency, for the first time, every US Attorney’s Office and DOJ component now has an operative and predictable policy in place, with each one tailored to the unique factors of the office or component.

“Where your company discovers criminal misconduct, the pathway to the best resolution will involve prompt, voluntary self-disclosure to the DOJ,” Monaco stated. Monaco cited the December 2022 resolution with ABB Ltd. as an example of the DOJ’s commitment to its self-disclosure policy. She noted that the result, which included a deferred prosecution agreement and a fine of more than $315 million, would have been “drastically different” had ABB not self-disclosed.

When pressed in a question and answer session after her speech for more clarity on whether companies should report allegations of misconduct when it may be too soon to tell whether an actual violation has occurred, Monaco said she recognizes that these can be difficult decisions involving balanced judgments that depend on the facts and circumstances, but she emphasized that “the company is going to be better off the sooner it provides information to us to allow us and the prosecutors to preserve evidence and ferret out additional facts.” She stated that the “most important thing” is to be “as transparent as possible” and to have a “remediation story” to tell.

Asked about how the DOJ ensures that it is on the same page as the SEC about expectations, Monaco stated that the DOJ has communicated with the SEC about the development and that, from a DOJ perspective, the DOJ is aiming to be transparent about the judgments it is making. The extent to which the SEC will formalize and follow its own stated policy promoting self-disclosure remains to be seen, as does how much credit the SEC will give in such circumstances.

Corporate Crime and National Security

The DOJ also announced this week a surge in resources to focus on the intersection of corporate crime and national security. Monaco described a significant restructuring with new resource commitments to the National Security Division that include: 

• Adding more than 25 new prosecutors for sanctions, export control crimes and related economic crimes
• The appointment of the first-ever chief counsel for corporate enforcement in the National Security Division 
• The creation of joint advisories with the Department of Commerce and the Department of the Treasury akin to the Foreign Corrupt Practices Act (FCPA) guidance issued by the DOJ and the SEC
• A substantial investment in the Bank Integrity Unit of the Money Laundering and Asset Recovery Section 

As she explained the DOJ’s focus on national security, Monaco stated that corporate criminal investigations increasingly carry “profound national security implications.” She cited the recent resolution with French cement company Lafarge SA as an example of the DOJ’s efforts in this area. In October 2022, Lafarge SA pled guilty to one count of conspiring to provide material support to ISIS and another terrorist organization and agreed to pay a penalty of more than $750 million.  

Monaco also echoed a refrain she has stated before that “sanctions are the new FCPA.” She noted that the DOJ currently has a number of significant corporate investigations involving sanctions in the transportation, technology, defense, banking and agriculture industries. Indeed, we have seen a recent increase in Office of Foreign Assets Control and DOJ activity in this space, particularly in relation to Russian sanctions and efforts to evade them.

Monaco stated that the National Security Division will work closely with US Attorney’s Offices to apply enforcement strategies that have proven their worth.

Key Considerations for Companies 

• The DOJ’s new policies on compensation track a broader focus in this area by enforcement agencies and signal continued efforts to target wrongdoers and those who supervised them. Under the new Pilot Program Regarding Compensation Incentives and Clawbacks, the implementation of compliance-driven compensation and bonus systems will be another factor used by DOJ to assess the overall effectiveness of a company’s corporate compliance program, and a commitment to clawing back compensation from individual wrongdoers could result in significant savings in the event of a corporate resolution. At the same time, given the costs of seeking to recover compensation, including often significant legal costs, it remains to be seen what the tangible benefits of this policy are for companies. Those benefits may turn in large part on how the DOJ interprets good faith efforts to recover compensation. 
• We also expect to see continued attention not just from the DOJ but from other enforcement authorities, including the SEC, on communication channels, including ephemeral messaging, and the policies around them. Companies should consider reassessing their policies in this area, as well as assessing their approach to communicating and enforcing those policies, in light of the increasing attention and evolving guidance from the DOJ.
• The DOJ has once again reaffirmed and expanded its focus on timely self-disclosure, cooperation and remediation efforts with the revisions to the Criminal Division’s Corporate Enforcement Policy and the announcement of a voluntary self-disclosure policy for US Attorney’s Offices, but it remains to be seen how these will operate in practice given the current aggressive enforcement environment with high fines and the increasing imposition of monitors.  
• The DOJ’s focus on transparency and predictability is in some tension with the SEC’s current enforcement approach. Grewal has publicly stated that the SEC is looking to impose higher penalties where precedent has not been sufficient to deter misconduct.  
• With the additional resources being committed to the National Security Division and the Bank Integrity Unit, companies should expect increasing enforcement on issues relating to anti-money laundering, sanctions, export control crimes and related economic crimes, and should review their policies and practices in these areas.