Ep.28: An Illusion of Certainty: DOJ’s Corp. Enforcement Policy
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About this episode. When the DOJ sneezes, the compliance community has a habit of mad dashing to the emergency room. And that’s pretty much what happened when the Department of Justice rolled out its “new” Corporate Enforcement Policy last month. And so, in this episode of The Better Way?, Zach and Hui—somewhat reluctantly—provide a high-level overview of the policy itself, before digging into a recent Law360 article Hui wrote in response. Together, they separate what’s truly new from what’s largely recycled and explain why the policy’s promises of clarity and certainty are far more complicated than the headlines suggest.
Hui argues that the policy rests on an assumption that no longer holds: a stable, predictable enforcement environment. She points to shifting prosecutorial priorities, declining capacity, increased politicization, and a changing bargaining landscape. Instead of treating disclosure as the default “right” answer, Hui calls for rigorous critical thinking: weighing the strength of the evidence, the likelihood of detection, and the real‑world consequences of each option. Along the way, the conversation reframes the compliance program not as a shield against prosecution, but as a tool for detecting signals and enabling better decisions. The takeaway: slow down, look past the hype and headlines, and ground compliance decisions in context, evidence, and thoughtful analysis—not fear.
Who? Zach Coseglia + Hui Chen, CDE Advisors
Full Transcript:
ZACH: Welcome back to The Better Way? Podcast brought to you by CDE advisors. Culture. Data. Ethics. This is a curiosity podcast for those who ask, “There has to be a better way, right? There just has to be.” I'm Zach Coseglia and I am joined as always by the one and only, Hui Chen. Hi, Hui.
HUI: Hi, Zach. Hello, everyone.
ZACH: All right, Hui, it's just me and you today. And, in fact, you're kind of like the guest for today's episode, because we're going to be talking about an article that you recently wrote that was published in Law 360 (also here) about the DOJ's, quote, new corporate enforcement policy.
HUI: I guess that's what we're gonna talk about.
ZACH: Well, it's actually kind of funny because whenever something like this comes out, we joke that it's not really that new. Folks will notice that in your article, you actually put the term “first ever” in quotes, further sort of underscoring the hyperbole of these types of announcements. And in fact, what happens is: I say to you, “the world wants to hear you on this topic.” And eventually, you let the world hear what you have to say on a topic like this.
HUI: After you, after you nudge and poke me, right? Because, as you know, I tend to… these things when they bubble, you know, whenever there is some kind of announcement, and I think in one of the pieces I had written, I said, you know, whenever DOJ sneezes, the compliance community runs to the ER. So, I see this mad-dash to the ER reaction. I just want to be far away from it. I talk, we talk about it with our clients. We talk about it amongst ourselves, but I just, you know, I never just want to join that mad dash to the ER. But then, at some point, it's like you saying to me, like, you have to tell people to stop running to the ER. And after I've seen so many people run to the ER, I say, all right, I guess I, you know, I should, I should say my…state my view more publicly. So, this repeats itself every time there is some kind of DOJ announcement and the frenzy that follows. So here we are on this thing that happened in March.
ZACH: Absolutely. And look, part of it is, I just truly believe that the community wants to hear from you. But I also know that the community wants to hear from you, in part, because you're going to have a different view on the topic than what you're hearing from most people. And that's very much what we're going to dig into today.
But before we get there, let's just set the scene and talk about this, quote, new policy, this framework that's been put in place. And I want to just start by quoting from the document itself about what it is and why. And it says, quote, the CEP draws
on decades of experience across the department and creates incentives for companies to disclose misconduct to the department, enabling the government to investigate and hold wrongdoers accountable more quickly. It then goes on to provide a list, I guess, of...what the policy is designed to do. One of them is to drive early voluntary self-disclosure of criminal conduct. Another is to promote timely and effective enforcement of criminal laws, including holding culpable individuals accountable. The third is reducing harm. The fourth is facilitating prompt remedial action. The fifth is helping ensure consistency across the department. And the 6th is to transparently describe the department's policies and decision making. Now, Hui, let's start with the newness of this. The ideas set forth in this policy are not really that new. What's really new here is the consistency of this being applied across the Department of Justice.
HUI: You are absolutely right. So, nothing in those concepts that you described is new. All of those have been there, have been reiterated in past documents, for at least 20 years, if not more. But what is new is that you have a single policy document that guides all criminal cases, except for antitrust, which is kind of an interesting exception, but I think it also may be an indication about the administration's position on antitrust enforcement—we don't know; but for some reason, antitrust is accepted out of this.
But think about the breadth this covers. It's not just the cases of the criminal division, which includes many, many cases outside of the traditional compliance world cases. You have the traditional sort of fraud FCPA type of cases. You have cybersecurity cases, intellectual property cases, money laundering cases. All of those cases are in, traditionally, in criminal division.
In addition to that, you have National Security Division that prosecutes sanctions cases and other types of criminal cases. You have environmental crime under the Environmental and Natural Resource Division. That's also covered in here; so, this is… the breadth of this is what is new.
ZACH: All right, so now let's dig into the three-part framework that's set forth, and we'll quickly hit each of those three parts. The first part is cases that will earn a declination. We'll get into that in a little bit more detail. The second part is what they call “near miss” voluntary self-disclosure cases, or those with aggravating factors. And the third is resolution of all other cases.
So, let's go back up and talk about those that will earn a declination. The factors set forth in the policy are as follows. First, the company must voluntarily self-disclose the misconduct to an appropriate department criminal component. Now, of course, this has five or so additional factors—or sub-factors—that go into it. The first is that there is a self-report to an appropriate DOJ criminal component. The next is that the conduct was previously unknown to the DOJ. The third is that there's no pre-existing obligation to disclosure [sic] to the DOJ. The next is that the disclosure has to be prior to imminent threat that the DOJ would learn of the misconduct. And then the last is that the disclosure is reasonably prompt. So that's the first part. That's what it means to voluntarily self-disclose. The second overarching component is that the company fully cooperated with the department's investigation. The third is that the company timely and appropriately remediated the misconduct. And the fourth is that there are no aggravating circumstances related to the nature or seriousness of the offense.
Now, Hui, one thing that I think is worth sort of underscoring here is digging even deeper into this idea of promptness—because later in the document, there is this sort of question of, well, what if there has been a whistleblower report to the DOJ, can you still get a declination? Can you still qualify? And I think the answer is: “maybe.” Under the whistleblower awards pilot program exception, you can still get self-disclosure credit if you self-report the conduct to the department as soon as reasonably practical, but no later than 120 days. And then all other requirements for self-disclosure are met. Again, this itself, as a concept from beginning to end, is not new.
HUI: No. In fact, it's been there for, again, like I said, at least a couple of decades. So, the first three factors, self-disclosure, cooperation, and remediation, are traditionally known as Phillip Factors.
ZACH: Yep.
HUI: And they come from the name of Mark Phillip, who was the Deputy Attorney General a couple decades ago. And he first articulated these, and they have since then been incorporated into the…what used to be called the United States Attorney's Manual and now, well, then became Justice Manual—and I'm not sure what it's called now. But it has been standing DOJ policy for at least that long. Now, what is different here is in the past, it's we're going to look at these three factors and they're going to influence how we treat you as prosecutors, right? Because if you meet all these factors, we'll be nicer to you; and if you don't mean, we'll just take deductions one after another. What is new here is the department is saying, if you meet these factors, we will decline. There is no, at least on the surface, there is no ifs and buts about it. But is it not to say that you can argue about all of these little things that you just articulated, right? So, was that really self-disclosure? Was that really full cooperation? Was that complete remediation? All of these things can be argued. So, on the face of it, there is more certainty; but in reality, there's probably less certainty than it seems.
ZACH: Absolutely, indeed. So, let's talk about some of the commentary that we've seen about the corporate enforcement policy in the last several weeks. I think it's been pretty consistent. The commentary that we've been hearing from law firms, from other consulting firms, just from our community has been “more incentives, more clarity, more reasons to self-disclose.” You know, we've seen folks talk about the government offering us a roadmap, and the question being, are we going to use it? You know, we've seen articles talking about the DOJ increasing certainty for companies that disclose wrongdoing in ways that suggest that they're almost implicitly, if not explicitly, endorsing disclosure as the path, not as a path to consider based on a variety of factors. We've seen the community, in a lot of ways, buying into the promises of transparency and the promises of predictability, largely because that's what the DOJ is saying to us. But, you know, the question that we're going to explore here is, can you really have certainty in an outlier environment—is certainty really certain when the environment in which we're operating is quite unusual? These aren't normal times, which is kind of the thesis of your piece, which we're going to talk about. We've seen people sort of ask the question, you know, is it no longer whether we should disclose, but are we prepared to disclose? This is just a little bit of the flavor for what we've been seeing, but it's not the flavor of the article that you've recently written. And I know that it's not the way you typically think about these things. So, we're going to spend this discussion digging deeper into your point of view. But if you had to summarize your core argument, in a sentence, what is this discourse getting wrong?
HUI: So, let me start by saying, I will get to that sentence in a minute, but let me start by saying that the kind of writing that you have described . . . that we generally are seeing in the compliance industry is exactly the same after every DOJ announcement. I mean, you could literally, I feel like it's the same article, you just change the sort of the heading a little bit: DOJ announced policy X. Oh, here is a, you know, course to follow, things, you know, you have to meet their expectations, blah, blah, blah. DOJ announces policy Y: swap out X for Y, and the rest of the article is the same.
And I think there is a lot of this hype about selling fear, selling the fear of DOJ, specifically. And I am concerned about that because fundamentally, I don't think we should be driven by that fear. And it's not just a matter of principle, it's also a matter of reality. We can really, you know, we're going to dig into the enforcement realities here. But my argument here is this: that by promising the seeming certainty of declination (and you didn't get into part two of the CEP, which was, if you didn't meet all those, you might get a promise non-prosecution agreement, if you sort of fall short of a couple of those elements and then you don't get any promises if you fall short of all of them). So, they're promising a candy to you, right? So, come to me, I will give you a reduction in penalty. I promise you a reduction in penalty. And that reduction could be absolutely none, right? So, a declination is no penalty at all. We're not even saying you committed any crimes at all. The NPA would be a reduction where we say you committed a crime, but we don't really, you know, put you under a monitorship or anything like that. So, a promise of reduction in penalty is only attractive if there is a realistic risk of penalty.
ZACH: Yeah.
HUI: You're promising me to punish me less is only attractive if I'm seriously facing penalty. But I think in an environment where that realistic risk is calculated differently today, that changes the attractive of this candy.
ZACH: Yeah, indeed. And it's, as you say, it's, well, incentives only matter if the enforcement risk is credible. So, let's talk more about that. Sort of the policy on one hand versus reality on the other. You argue, here, in this piece that the policy assumes a stable enforcement environment. But that assumption might no longer hold true. What has changed?
HUI: So, a number of things have very visibly changed. So, the current administration came in and among its earliest priorities was a White House Executive Order suspending the enforcement of FCPA, right? This community was all wild about that. And that truly was a quite remarkable development. I will give you that. So, I think you can tell from that priority that it has a different view on what kind of cases should the Department of Justice be pursuing and focusing its energy on. Then what you see is a mass exodus of career prosecutors leaving the Department of Justice. You have, as a result of that, DOJ, for the first time in, I don't know how long, perhaps in history, dropping—lowering—its hiring standard. So this shows you that they really don't seem to have enough people that they need, right? So, you also have an environment where traditionally, the criminal cases are not seen as influenced by political considerations. You're seeing more of those arguments now. Let's not get into the merits of those arguments, but you're certainly seeing more of those arguments. So, those are all things—criteria—that impact the enforcement realities as we go into this age.
ZACH: Yeah, it's so . . . this is why . . . this is why I push you to write this stuff and to talk about this stuff; and why I think your voice actually is so important in this space because, you know, part of what I did in prepping for this and part of what I did just in thinking about and processing the importance or not of the CEP, is I look to see how our community reacts. And we talked about some of that. But one of the things that I saw repeatedly was this idea that the issuance of the CEP is evidence that corporate enforcement, as we've known it for years, is going to continue to be a priority at this Department of Justice. And I hear that, I see that, and I'm like, well, does it? Is that really the message to take away? Is the message really to take away that corporate enforcement is going to continue to be the priority that it's always been? Or as you've pointed out, are there a whole other host of context clues that suggest that corporate enforcement is changing and very arguably waning?
HUI: One of the things that I didn't even mention was this creation of a new National Fraud Division, right? Which is unprecedented on a couple of levels. One, there is already an existing Fraud Section, and fraud is really prosecuted by every single United States Attorney's Office. Plus, you have this fraud section in the Criminal Division. Was it necessary to create a national fraud division. And what's even more unprecedented was that there has been announcements from the vice president, as well as sort of reference to it from the memo creating this division, that there would be coordination, if not direct supervision from the White House. Which is something certainly in my years at DOJ was something that DOJ prosecutors went out of their way to avoid was that, and you know, was that . . . this whole notion that we report to the president was not something you want to even touch—at that time. Today, that was announced as this is what this division is going to do. So, exactly what is going to be a jurisdiction of this division versus the Fraud Section versus the United States Attorney's Office? If they disagree on jurisdiction, what are they going to do? Who's going to have the final vote? Or is a whole bunch of people going to fight over it? When they fight over it, does that mean more people are going to be looking at the conduct or nobody's going to be looking at the conduct? So, this whole issue about the prosecutorial interest that would drive cases is now a little bit murky because we don't know how this new prosecutorial division is going to function.
Another important question is what kind of prosecutorial approach are these prosecutors, be they the Fraud Division, the Fraud Section, or U.S. Attorney's offices, are they going to take what I call an evidence-led approach or a target-led approach? So, an evidence-led approach is we follow the evidence wherever it leads. And the target-led approach is we pick our target, and that could be a company, an individual, a set of issues, and we will build our case so that we can go after the target that we set. So, are they going to take a more target-focused approach or evidence-focused approach? All of those change the prosecutory interest, how they prosecute it, whom they would prosecute, and what tools they're going to use to prosecute. So, all of those are not mentioned in any of the commentaries that I suppose you have seen.
ZACH: Yeah, I mean, my question to you was going to be, is the problem fragmentation? Is it confusion? Or is it that prosecution may be politicized now? It sounds like your answer is: yes. It's all of those things.
HUI: It's all of those things. They're certainly in play. We don't know until that division is up and running. And we're going to have to see how it plays out in cases. So, it's too uncertain to tell.
ZACH: Yeah. Yeah. So, I started by asking you what's changed. And really, it sounds like what you're saying is that what's changed is that our approach in the past—for decades— has been predicated on this idea that, as you say, companies face meaningful risk of detection and prosecution absent self-disclosure. One of the reasons that you've sort of given to say that there's been this structural shift is uncertain prosecutorial interest. You hit on this a little bit—but talk more about prosecutorial capacity today.
HUI: So that's when I was talking about the exodus of career attorneys and career prosecutors and the lowering of the hiring standard. What that means is you're losing experienced prosecutors and you're getting inexperienced young lawyers fresh out of law school as the prosecutors on cases. That matters a lot, especially in white color cases, because, certainly when I was brought up as a prosecutor, white color is the space reserved for more experienced prosecutors. You sort of learn your trade, by doing, you know—when I started in the US Attorney's Office, you know, you always go to general crimes first. General crime is where you prosecute bank robberies, lower-level narcotics cases, and you also do some, you know, very low, very, very simple fraud cases, perhaps—you don't even get to touch like insurance fraud. But you do these entry level cases and then you go to one of those units, specialized units where you can learn more advanced investigative skills like how to do electronic surveillance, how to run a surveillance operation, undercover operation.
Those would be in units like organized crime, narcotics, where you're really trying to run an operation that's focusing on significant operations, right? So you do those; and then, after at least three to five years doing these things, you move to something more like a white-collar unit, like public integrity, insurance fraud, you know, financial and securities fraud. So, think about all the people who are now, who have this experience of doing these cases are now gone. And you have people who have never done any of those things. They have never prosecuted a case, any case. Not bank robbery, not narcotics, never run a surveillance operation, never run an undercover operation, never run a . . . never been in a grand jury, right? They're now running these cases. That experience level will make a difference. How you develop, as we all know, and any of those who has conducted internal investigations, right; so even conducting an internal investigation and building an employment case for remediation requires a certain level of experience about how to handle everything that's involved—you don't have that on the prosecutor's side anymore. And that makes a big difference in their ability to develop cases on their own, which was something that even experienced prosecutors hardly ever did.
ZACH: Well, and I think that that's the point that's even most compelling to me is that, yes, everything that you just said, but also as you point out, even at its peak, enforcement only captured a fraction of misconduct. It's like, that has always sort of been underappreciated. And now you have an even less experienced prosecutorial base that's going to potentially struggle even more.
HUI: I think it's traditionally been underappreciated by the echo chamber of the compliance community. It is the fact that a whole lot of people, most people who commit crimes are not caught. That is a fact that's very much appreciated by businesspeople.
ZACH: Yeah, indeed. All right, so we've got prosecutorial interest, we've got prosecutorial capacity. Now let's talk about bargaining power. You describe a shift from a predictable negotiation system to something maybe fairly described as less stable. So, what does that really look like in practice? What's not being discussed about the bargaining environment today?
HUI: One is this whole notion of politicizing the process, right? So, if you have, let's say, a Fraud Division, that's, let's say they're taking on the most significant cases, but it is directly overseen or working with the White House. In the past, when you're under investigation by DOJ, you just got to deal with the prosecutors in front of you. I mean, I'm not even talking about their chiefs. You're just . . . the prosecutor, the line prosecutor assigned to deal with your cases, you know, you're talking with them when you're sitting down with DOJ meeting. Maybe their supervisors will be there, you don't even get to see like the Deputy Attorney General or forget the Attorney General. And if you try to make an appeal to the White House, I would tell you what I had seen when somebody had, in one particular case, somebody had very, very, very subtly hinted at their political contribution to the party in power. And that for sure brought them harsher scrutiny than they would have gotten had they not made that move. All right. So that was the environment in the past. Today, if you have a division that is directly and openly overseen by the White House, why don't you just negotiate with the White House? Why bother with the lowly prosecutor in front of you, right? So, this notion or this belief or perception that there is political influence in the process makes you believe that you have other audiences, more powerful audiences, that you can appeal to that could influence how your case is being handled. So, that bargaining power changes things because, you know, power, perception is reality. So, if both you and the prosecutor across the table believe that's true, that changes, even if that's not true, that perception would change the bargaining dynamics. So, that is one significant change.
The second aspect of politicization, I'm not even sure that's a word, of the process, is that in the past, companies had been very reluctant to even consider going or threatening to go to trial as an option, because the risk is just too great. Because as you now know, from firsthand experience, Zach—Zach has been serving on a jury—so, you never know what happens in the jury room. And you have no idea what could happen. You could think you have a strong case. Jury may have a whole different perception. They may get hung up on things that you never even thought about. So, going to jury is a big risk. But there is a long road before going to jury. So, positioning yourself—the typical, outside of the FCPA space, in a normal criminal case negotiation, everybody's positioning is based on the ultimate trial threat, the threat of trial. So can the prosecutor win this case at trial? Can I create reasonable doubt as defendant, right? So, no matter how far away they're from that trial, that's always been sort of the backdrop against which all negotiations are made. That was not the case in certainly in a lot of the major corporate cases that we have seen in the past couple of decades. So one is because of the uncertainty of juries. Two is because criminal cases are criminal cases. They are not . . . they were not considered some byproduct of political consideration. So there is no, there's very little to gain by fighting a crime because the more you fight that . . . fighting the charge of a crime. Because the more you fight that, the more it's associated to you. So you fight the corruption charge. You say, I'm going to go to trial, you drag it out. And the longer you drag it out, the more you seem corrupt because you associate that concept with you, that unpolluted concept about, you know, you are a criminal, here is a crime that you have committed and you don't want that association.
Today, we are already seeing in cases where essentially political motivation is being raised as a form of defense, that this is prosecutorial misconduct. They are coming after me because of political reasons. These kind of arguments are being raised in cases now. If we get to a point, and some might say that we are at this point, where that can become something closer to a norm, where somebody could you know, lots of people are raising these that takes away that stigma of threatening trial. So think about this. You're sitting across inexperienced prosecutors who have never investigated or tried these cases. In fact, they have never tried any cases. You're sitting across, you're being represented by presumably someone who have tried these cases, right?
ZACH: Let's hope. You're paying a lot for it, so let's hope.
HUI: Let's hope. Yeah, you're paying a lot for it. So, you're now looking at a trial calibration that looks different. Now, threatening to go to trial may not be such an outrageous thing to consider because you've got, if you fail at your appeal to other audiences, you can say, I'm ready to go to trial. I got a jury to whom I can make this appeal. I've got courts that I can raise prosecutorial misconduct to. And by the way, I just have a better trial lawyer than you do. Right? So all of that changes the calculation of whether to position yourself as ready to go to trial. I'm not saying to go to trial yet, but whether to position yourself in that way. And I think the circumstances have made it more realistic and perhaps even appealing in some cases to consider that positioning.
ZACH: Yeah, yeah. Well, one of the other things that you write about, which I think is very powerful, is, and I'll just quote you, you say, “In such an environment, the strength of the evidence, rather than formal credit or disclosure or compliance, reasserts itself as the central determinant of outcomes.” It's, you know, so much of the discourse that we see is, are you prepared to be able to quickly self-disclose? You know, are you going to be able to get the credit that's being offered? But you flip the script on that, and you say, hey, let's focus more on, or maybe in this environment, we just have to focus more on, the strength of the evidence. Because I think a lot of us who have been in this space for a long time, some of us for decades, we always knew that the evidence to actually meet the legal standard for some of these claims wasn't really strong. But . . . right?
HUI: No, no. And especially if you refuse to cooperate, right? So, you know, again, I have, when I was in the DOJ, I had seen situation—and these are the things that you would never hear about the people in our space write about; so, you know, DOJ hears about some company having done something. DOJ approaches the company and says, we heard about this. Would you like to come in and talk to us about it? The company says, no, thank you.
ZACH: Right.
HUI: Right? And DOJ couldn't do anything about it. They don't even have enough to go to a grand jury. So that happened more than once, right?
ZACH: Yeah, well, and that's the thing—that's the thing. I mean, you know, our friends, our colleagues, you know, who do this work, we often see, you know, alerts, we see social media, we see, you know, just public discussion about, “hey, look at this positive story of a company that self-disclosed and the small consequences for that.” Sometimes in the form of disgorgement, just sometimes in the form of unfortunate press, but, you know, not the penalties, not the monitorships, not the you know, the consequences that we typically see. But what you never hear people talk about is what you just said, which is all of the people who were just like, “no, we're good.”
HUI: Yes, there were a number of them. I would say not a large number of them, but the real number is the number that's unknown, is . . . people who never self-disclosed anything, who never came across the DOJ radar screen. And if and when they show up as a blip, DOJ comes knocking. They say, no, thank you. You want something? You can send us a subpoena, right? The issue here is the incentive of your service providers. You have outside counsel who charge by the hour. When they say, no thank you to the DOJ, it’s 0.1 hour.
ZACH: That's right. Yeah.
HUI: If they say, yes, we'll come in, prepare a presentation for you. Think about how many hours that would be. That's hours helping you prepare for the meeting, hours of meeting with the DOJ, hours helping debrief you and the DOJ, and communicating what follows and all that. That's many, many, many, many, many more hours that the service provider can bill you. And I'm not saying that is the incentive that purely drives this. I think many of them truly believe that is the right course to go. But I want to question what led to that belief.
ZACH: Okay. Yeah, yeah, I mean, I co-sign that. I'm curious about that as well. And it goes back to what I said earlier about some of the discussion that we've seen about this, quote, new policy; and those who say that it is evidence of what a priority corporate enforcement continues to be for the DOJ. I can't help but be a little cynical about that and wonder, well, is it really evidence of that? Or is it just because that's the position that you need companies to take in order to be able to continue to sell your very expensive services?
HUI: Yeah, I would never sort of take somebody's statement. Isn't this what we tell the compliance community? You don't just look at words, you look at action. Right? So, what is there, what is . . . what the priority of an administration is evidenced by the totality of their actions, not singularity of their statements.
ZACH: That's right. That's right. And we also tell them to look at context. And that's what I love so much about the way that you frame this in your article, because these points about prosecutorial interest, these points about prosecutorial capacity, about the change in the bargaining environment, that is telling a really interesting story about the context in which that decision to self-disclose is made. Now . . .
HUI: Context matters. I mean, I just cannot emphasize that more. You know, this is what we talk about when we talk about critical thinking. When somebody hands you a candy, you just, you don't just go look at what is the flavor of the candy? How sweet is the candy? You look at who is giving you the candy? Why is this person giving you the candy?
ZACH: Yeah. That is so . . . that's a classic Hui analogy. I love that. Who's giving you this candy?
HUI: And why?
ZACH: And why. Okay, I want to talk about something really important though, because sometimes in these big discussions nuance is an afterthought and I want to make sure that we focus on the nuance of this because there's nothing about what you're saying or what we're talking about today that should be taken as don't self-disclose. There's nothing that we're talking about here that should be taken as commit crimes because you won't be caught. There is nothing about, there's nothing about what we're saying today that suggests that you shouldn't invest in a compliance program and focus on building a culture of ethics and integrity.
HUI: Absolutely not.
ZACH: What you're really talking about is reframing the self-disclosure calculus. So expand on that a little bit more for us.
HUI: I think, ultimately, we're talking about critical thinking, right? You know, we're back to that theme about the context. So today, if a company finds itself in a position where they have discovered misconduct and that's sufficiently serious that they're considering whether to self-disclose, I think they need to be thinking more critically about analyzing the consequences of that decision. So, there are four questions that I wrote in my article that I believe you should be asking if you're in that situation. So, the first is, what are the likely consequences of disclosure. So, DOJ has said its piece, but remember, we said there are nuances, right? Because even if you appear to meet all the conditions for declination, there are nuances to those conditions. Are you going to pass with flying colors?
ZACH: Yeah.
HUI: And I would say, by the way, if you're one of the potential targets for a target-focused approach, I'm not sure what can really help you.
ZACH: Yeah.
HUI: So, we're talking now about an evidence-based approach here. So, in that evidence focused world, you want to think about, in addition, so in addition to DOJ's promises, what are the financial impact on the company? What are the operational impact, reputational impact on the company? Because they're, you know, walking away with a declination doesn't mean you don't have to pay fines. So how much is the fine going to be? You know, what is the potential damage to your reputation? How does it impact your operation? All of those things you should consider very carefully and write them out, like in a true, robust analysis. Those are the consequences of disclosure.
Then, look at: what if you don't disclose? Look at the opposing proposal, right? What is the likelihood that the misconduct will be detected and pursued successfully under the current enforcement conditions? How likely is it that DOJ will independently be able to discover and successfully investigate and prosecute this case? Or how likely is it that you may have a whistleblower who can give sufficient evidence to the prosecution to enable that; so, again, question your outside counsel very carefully. Demand a robust legal analysis. Don't settle for: Yeah, yeah, yeah, there's been cases like this. If they say there's been cases like this, ask them to cite it. Ask them specific facts. They say there is a case just like yours that was prosecuted, ask them to tell you how was it discovered? What was the evidence? Be very specific and demanding of critical evidence-based analysis.
The third question: if you were detected without self-disclosing, how strong is the government's case likely to be without your full cooperation? So now we're just taking that approach of non-disclosure down the line, right? So, you did your analysis, you decide not to, self-disclose, let's say two years down the line, the government does somehow discover this. Picture yourself two years down the line with this particular misconduct. How strong is the government's case without your cooperation? If you don't hand over evidence, how strong is their case? Can they make the case?
So again, none of this is saying do this, but you need to think about it. This because this is your bargaining analysis. This is your decision analysis. You need to understand that you have options at each stage and what each option can give you. And finally, how would the matter unfold under different prosecutorial approaches. So, this is what I sort of referenced in the beginning. If you are vulnerable as under a target-driven environment, there's probably very little that could help you because the target driven environment by nature is that they will build a case against the chosen target using whatever tools they've got. So, they're not open to negotiation. But in an evidence-driven world, you have these bargaining powers. So how vulnerable are you in an evidence-led versus target-driven approach? Think about all of those, demand robust evidence, citation, all of that in the analysis that's going into your decision.
ZACH: Yeah, yeah. So that's sort of addressing the need for critical thinking and the kind of analysis that one should do when making this decision, rather than just sort of following the blueprint that the DOJ has given. But let's talk about compliance programs, because you also kind of reframe compliance programs by saying that they may be less of a shield and more of a signal in this environment. What do you mean by that?
HUI: So, if you noticed, in the proper text, not the appendix of the corporate enforcement policy, there's almost no mention of compliance program. And there is also, compliance has always even under Phillip Factors, in the justice manual had always been a subpart of your remediation effort. So it is, I used to say, fill a factor, not fill a factor, was primarily 3, but under the U.S. attorneys, so sorry, I still call it U.S. attorneys, but the justice manual it was 10 factors and compliance I used to call is one and maybe a third of the factors. One is your compliance program before the misconduct and then under remediation is how much enhancement have you made to the program in response. So having those there was clear signal to say that these are things we'll consider in resolving your case. There's very little mention of that in the CEP. So, see a compliance program's value in reducing your fine or avoiding prosecution is certainly not really articulated here. What is important, I think, in this environment is you need to know that you have misconduct. You need to know how severe is your misconduct, how widespread is your misconduct so that you can make that self-disclosure decision. You also need to know, by the way, even in a target-focused type of approach because you need to know how vulnerable you are.
ZACH: Yeah.
HUI: So, all of this is to say that compliance programs that exist to prevent, detect, and remediate misconduct can be very useful to you in helping you see the signals of misconduct. You need to know about your misconduct in time, in precise terms so that you can have the answers you need to make that disclosure analysis. Because without that, you know, so hopefully you have good prevention that you don't ever find yourself in a situation where you find a sufficiently severe misconduct that you are even having to consider that self-disclosure issue. But you need to have those signals, the mechanisms there to let you know that that's where you are, if that's what happened, and to help you have enough information to make that assessment.
ZACH: Yeah, yeah. I mean, you referenced the body of the CEP itself. I was so much more interested in the appendix to the CEP. I think it was Appendix B that had the definitions. And to your point, you know, under the definition of timely and appropriate remediation, again, none of this terribly new, but I thought it's very interesting that the first thing that's listed there is that it is “demonstrated through analysis of the causes of underlying conduct, i.e. a root cause analysis, and where appropriate, remediated to address those root causes.” We've been talking about this for a long time. We believe so deeply in a strong meaningful, well-designed root cause analysis. And here it is, number one in the definition of timely and appropriate remediation.
The other things that I thought, again, are really interesting, not terribly new, but very interesting nonetheless, is the definition of timely and appropriate remediation then goes on to talk about implementation of an effective compliance and ethics program. We talk all the time about focusing on outcomes, not output. We talk all the time about the importance of context and the importance of culture. And here you have in this document, the first thing that's listed under an effective compliance and ethics program is “the company's commitment to instilling corporate values that promote compliance, including awareness among employees that any criminal conduct, including the conduct underlying the investigations, will not be tolerated.” When we're talking about values, we're talking about culture. We're talking about the thing that we actually say all the time should be what you focus on instead of what the DOJ is telling you. We always say, don't focus on DOJ guidance. Don't focus on DOJ statements. Focus on your North Star. Focus on your values. Focus on the kind of organization you want to be for your employees, for your shareholders, for your stakeholders. And hey, the DOJ is actually agreeing here because they're saying focusing on your corporate values. That's where they start. And then they end with “the testing of the compliance program to assure its effectiveness.” And this is what we talk about all the time when it comes to outcomes rather than output. It's not how many policies do you have, or how many trainings did you do, or how many people did you touch with your communications? It's about whether or not you are testing to confirm that those things are having the impact that you desire, that they are, as you said, preventing, detecting, and in fact, remediating potential misconduct.
HUI: Yes, I actually did like the definition laid out there.
ZACH: Yeah, yeah. And again, to me, so much more interesting than the headline of all of this.
HUI: Indeed, as often is the case.
ZACH: As often is the case. All right, Hui. One other thing, one last thing, I want to talk about is something that you talked about at the beginning, which is fear. One of the things that I think makes our work really hard, that makes the work of those who are listening very hard, that makes the work of the compliance community very hard, is that we don't have a lot of things to really engage some of our stakeholders—to get their attention. And we talk all the time about how fear shouldn't be the thing that we default to. But what do you say to those folks who see new policies like this coming out and think “this can be the hook to get the attention of people internally.” Like, how do you respond to that, I think, understandable and very natural and frankly, very real instinct for a lot of folks in our profession?
HUI: You know, I think we have to recognize that we thought was selling fear, I question how well it really worked. Zach, you and I have worked very closely with some business leaders. When we tell them about a big fine so-and-so just got in our same industry, they can immediately, like on the spot, tell you 20 others who did the same thing and nothing happened to them. So, if you think you're scaring them, you're not. So, let's just start there, right? Because most businesspeople are not running around thinking what the DOJ might do to them. That's just not what businesspeople do. That might be what the compliance echo chamber does, but that's not what the businesspeople do. So how effective at selling are these DOJ memos is an open question.
ZACH: I think that's fair. But what about just the idea of I need some ammunition and maybe it's not fear in the form of fines or corporate disgrace, but it's just I need ammunition to get what I need for my program. And here's the DOJ giving me something that I can put in front of folks that's tangible.
HUI: Yeah, I just don't think anything from DOJ is something that you should be putting in front of your businesspeople, because really that's just not their world. So, I think, to me, the hook would be, you know, I am the person who leads the function that monitors the health of our organization, right? I'm there to make sure that there's basically that, you know, no diseases in our organization. And I take every signal seriously. I'm the one who's checking that employees understand what our values and expectations are. I'm the one who's helping them meet those expectations. You know, when they run into trouble at work, you know, in terms of how do I make a decision that's consistent with our values and expectations and laws and regulations, I am the one who's there to help them do that. So, if there is a problem that does occur, I'm the one who finds out about it quickly and tell you about it so we can fix it. Those are the values that I believe, I truly believe compliance can bring to the organization and that's what you should be selling.
ZACH: I agree. I agree. It's so much more about how you can bring value to the business or how you are part of the business achieving its ultimate goal than it is the fear or the shadow that the DOJ could potentially cast. All right, Hui, we are just about out of time. What do you want to leave folks with?
HUI: Critical thinking. Always think critically and look at the context.
ZACH: Absolutely. So well said. Well, this is fun, as always. It's always a joy for me when I get to kind of play interviewer and just dig into, you know, your thoughts on really important topics for our community. So, thanks so much.
HUI: Well, thank you. Thanks, everyone.
ZACH: And thank you all for tuning in to TheBetter Way? Podcast. For more information about this or anything else that’s happening with CDE Advisors, visit our website at www.CDEAdvisors.com, where you can also check out the Better Way blog. And please like and subscribe to this series on Apply or Spotify. And, finally, if you have thoughts about what we talked about today, the work we do here at CDE, or just have ideas for Better Ways we should explore, please don’t hesitate to reach out—we’d love to hear from you. Thanks again for listening.