DOJ’s enforcement priorities and what they mean for you

by Hui CHEN

“Recognize the uncertainty and turmoil of the times. Things that used to be prosecuted may now be overlooked, and things that used to be encouraged may now be prosecuted. Be very clear about your values and be prepared to fight for them with everything you’ve got.”

Hui Chen

The Ethics & Compliance community always buzzes around announcements from DOJ. The latest buzz surrounds the announcement of the Criminal Division’s latest white-collar crime enforcement plan. As usual, my take on the announcement is perhaps a bit different than most of what you have seen in our circle.

White-Collar Prosecutions Will Serve the Priorities of the Administration

Typically, when DOJ officials speak at white-collar crime conferences, they start by reaffirming white-collar prosecution as a priority in and of itself. Not this time.

Matthew R. Galeotti, Head of the Criminal Division, began his speech by reaffirming the Criminal Division’s priorities in prosecuting cartels, human trafficking, narcotics, and violent crimes. This emphasis is maintained throughout his presentation. Galeotti stated that “costs and uncertainty” associated with past “long-running investigations” have “diverted the Department’s resources from tackling the most significant threats facing our country.” In other words, he doesn’t want white-collar investigations to distract the DOJ from doing other more important cases.

Even among white-collar crimes, there is a hierarchy of importance: the Criminal Division will be “laser-focused on the most urgent threats to America”: fraud against individuals and against the federal government, and white-collar crimes that support or benefit cartels, terrorist, and “hostile nation states.” These crimes account for 9 out of the 10 priority categories of white-collar crime listed in Section I.B. of Galeotti’s memo.

Some in the E&C community seize on item 9 of this list: “Bribery and associated money laundering that impact U.S. national interests, undermine U.S. national security, harm the competitiveness of U.S. businesses, and enrich foreign corrupt officials.” I can almost hear the relief: “Whew! FCPA is on the list!”

Not so fast . . .

Item 9 also references the Executive Order pausing FCPA enforcement and the Attorney General’s memo limiting enforcement to transnational criminal organizations (TCOs). Therefore, the FCPA pause will remain until the Attorney General has concluded the requisite study, and even if it resumes, she will likely revert to her own memo and direct it towards TCOs. It is also possible that FCPA enforcement may target foreign companies whose bribes “harm the competitiveness of U.S. businesses”, a possibility we explored when we discussed the FCPA pause.

Further confirmation of DOJ’s enforcement priorities can be found in Galeotti’s addition to the Criminal Division’s Corporate Whistleblower Awards Pilot Program. The types of violations for which whistleblowers can be rewarded now include those related to TCOs, immigration law, terrorism, tariff fraud, etc.

In sum, white collar prosecutions will occur in service to priorities that have been repeatedly emphasized: TCOs, narcotics, fraud against individuals and the federal government, immigration, and harm to “American interests,” however that is defined.

A Big Carrot with a Small Stick

Having made clear that past white-collar enforcement distracted DOJ from prosecuting more important cases, Galeotti directs prosecutors to “move expeditiously” in the white-collar cases they do take on. He then presented a generous “carrot”—illustrated by a flow chart no less—to encourage company self-reporting.

If a company meets all the voluntary self-disclosure, cooperation and remediation requirements and there are no aggravating circumstances, it gets the certainty of a declination. If the company misses one or some of these elements, no problem: a guaranteed Non-Prosecution Agreement of not more than three years, no monitor, and 75% reduction in fines and penalties. If it completely fails to do any of these? Well, it still might luck out with prosecutorial discretion and receive up to a 50% of reduction in fines and penalties.

How attractive a carrot is, however, depends on the size of the stick: a discount on penalty is not a big enticement if there is little likelihood of getting caught. What is missing from the flow chart is what would happen if the company never self-reports, and the crime is not discovered by DOJ within the statute of limitation. In that case, there would no prosecution, no fines or penalty, no monitor, and not even negative press.

Imagine yourself having to park in a red zone in a pinch. You see a sign that says: “if you park illegally, report yourself and we will fine you $10 instead of $80. If we catch you, you can still rely on our discretion and be fined only $40.” If you know this area is rarely patrolled or surveilled, then your risk analysis might be: 90% chance of never being caught (paying $0) vs. 10% being caught (paying $40-$80).

While I can’t give you 90% probability, we can look at what DOJ is telling us about how hard it is looking to enforce against white-collar crime: it is “laser focused” on only certain types of crimes (most of which are not white-collar); it wants to do white-collar investigations “expeditiously”; and even when it does prosecute white-collar cases, there is a clear hierarchy of preferences. Add to these an overall steady decline in white collar prosecution over the last decade (this means decreasing number of experienced prosecutors who know how to investigate and prosecute these cases), and it seems the chances of DOJ proactively investigating a complex white-collar crime case that does not relate to cartel or terrorism financing or immigration or healthcare fraud to be quite small.

You might say this parking red zone is not actively patrolled or surveilled.

If a company chooses not to self-report but gets caught, it might still get a 50% discount. It also has the option of forcing the government to prove its case at trial. Companies have been reluctant to choose this path in the past. Times, however, have changed: from the overall social and political climate to the mass departure of experienced white-collar prosecutors from DOJ, the likelihood of DOJ backing out before trial or the company winning at trial are not unrealistic.

Monitors—Still No Clearly Defined Goals

Just as Galeotti criticizes past “unchecked enforcement,” he wants to curtail “unrestrained monitors.” The only surprise for me here is that he has not ruled out monitors altogether: he only tells us to “expect to see fewer of them going forward.” As we have argued in our recent paper on monitors, the monitor system is broken and an overhaul is long overdue. Galeotti states that “the value monitors add is often outweighed by the cost they impose”: but how does one weigh unquantified “value” against very quantifiable costs? I only regret to see that DOJ appears content to continue using monitors without attempting to articulate measurable goals.

What Do These Announcement Mean for Companies?

First, our raison d'être must shift from compliance (doing what we are told) to ethics (doing what we believe). Continue in your anti-bribery and corruption efforts not because you might be caught (or because the government is telling you it’s a priority for them), but because you believe in it. This will require many compliance officers to change the messaging they have been using for years: you have to offer compelling, concrete, and measurable evidence of why compliance matters. Fear of enforcement was always a losing marketing strategy, in the long run.

DOJ’s new enforcement priorities may also free compliance from some of the hyper-technical and idiosyncratic “legal requirements” that the vendor-driven compliance industry has developed: stop debating whether your meal limit should be $25 or $50; start looking, instead, at trends and behavior that define who you are as a company.

And when you find misconduct that may rise to the level of self-reporting: think hard and do a realistic analysis of the cost and benefit. Probe your counsel to give you all the options and analysis: not just the one that will incur the most legal fees.

Finally, recognize the uncertainty and turmoil of the times. Things that used to be prosecuted may now be overlooked, and things that used to be encouraged may now be prosecuted. Be very clear about your values and be prepared to fight for them with everything you’ve got.