DOJ Announces New Policies on Clawbacks and Business-Related Communications
- The announcements are the latest DOJ initiatives designed to force proactive compliance by corporations.
- Deputy Attorney General Lisa Monaco announced the pilot program requiring companies resolving matters with the DOJ to implement compliance-promoting criteria in compensation programs. The DOJ will reduce fines for companies that pursue clawbacks of compensation from corporate wrongdoers, she said.
- Assistant Attorney General Kenneth Polite provided more details on the clawback program and on how the DOJ, based on Ms. Monaco’s September 15, 2022, memorandum on corporate crime, will consider a corporation’s approach to preserving business communications in its evaluation of corporate compliance programs.
The Bottom Line
As noted in our prior alert on the recent DOJ announcement of its new Voluntary Self-Disclosure Policy, the DOJ continues to update its policies to incentivize self-reporting and cooperation by companies. On March 2, 2023, Deputy Attorney General Lisa Monaco announced the DOJ’s first-ever Pilot Program on Compensation Incentives and Clawbacks in her remarks at the American Bar Association National Institute on White Collar Crime. According to Monaco, the DOJ hopes that this new policy will cause companies to shift the burden of corporate malfeasance away from uninvolved shareholders onto those responsible.
Monaco explained that the new DOJ policy has two parts. First, in every corporate resolution with the Criminal Division, companies will be required to develop compliance-promoting criteria within their compensation and bonus system. Monaco pointed to Danish bank Danske’s recent plea agreement with DOJ, where, as part of its agreement, Danske agreed to revise its performance review and bonus system to include criteria related to compliance, and Danske executives with a failing compliance score would be ineligible for bonuses.
Second, the Criminal Division will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers as part of the Pilot Program. A resolving company will pay the applicable fine to DOJ, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees. If a company succeeds in recouping compensation from a responsible employee, the company will get to keep the clawback money and not pay the amount recovered. According to Monaco and Assistant Attorney General Polite, the DOJ will also reward companies that pursue clawbacks in good faith but are unsuccessful with fine reductions. According to Polite, prosecutors will have discretion to reduce a resolving company’s fine by 25 percent in the event the company is unsuccessful in its good faith efforts to claw back compensation. The DOJ hopes that its Pilot Program will encourage companies to factor compliance into their compensation programs.
Alongside this change to clawbacks, Polite announced a significant change to the DOJ’s Evaluation of Corporate Compliance Programs (ECCP). In Monaco’s September 15, 2022 Memorandum on corporate crime, DOJ flagged that it will consider a corporation’s policies and procedures on personal devices and third-party messaging platforms to ensure that business-related electronic data and communications are preserved. DOJ will examine these policies and procedures not only for regulated entities but for all corporations. According to Polite, the DOJ will assess how a company’s policies governing messaging applications are tailored to a company’s risk profile and business needs, and how a company ensures that business-related electronic data and communications are preserved. The DOJ will also evaluate how companies communicate their policies on business-related communications to employees and how they enforce those policies. The Department also plans to inquire about both corporations’ preservation of electronic communications on their own channels, and the preservation of business-related communications on employees’ own personal devices. During investigations, prosecutors will now also ask companies about their ability to access employees’ third-party messaging applications’ communications. According to Polite, a company’s answers to these new questions regarding the availability and preservation of business-related communications may affect the offer a corporation receives to resolve criminal liability.
These new DOJ initiatives herald a new regime designed to force proactive compliance steps by corporations. The Pilot Program on Compensation Incentives and Clawbacks provides specific guidance on how companies may lessen fines for alleged wrongdoing. Companies that amplify their compliance programs and seek to claw back compensation from culpable executives will be rewarded by the DOJ. As Monaco stated in her speech, it would behoove companies to “get ahead of the curve” and enact new compliance programs in light of the DOJ’s Pilot Program.
Similarly, Polite’s announcement of changes to DOJ’s ECCP regarding business-related communications suggests that companies should start implementing policies and programs related to the preservation of all business-related communications as soon as possible. Proactive steps may pay dividends down the road in avoiding adverse results from any DOJ investigation. Ballard Spahr attorneys in the White Collar/Internal Investigations Group have deep experience in assisting individuals and entities in navigating federal criminal laws, including the development and oversight of effective compliance programs and document collection and preservation practices. Please contact us for more information.
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