DOJ’s Latest Corporate Enforcement Policy Targets Compensation and Third-Party Messaging | Wiley Rein LLP
Speaking at this year’s American Bar Association’s National Institute on White Collar Crime, Assistant Attorney General Lisa Monaco and Assistant Attorney General Kenneth A. Polite outlined recent revisions to the Department of Justice’s (DOJ) corporate law enforcement guidelines. The targets for these latest updates – Compensation Practices and Third-Party News. AAG Polite discussed significant revisions to the Evaluation of Corporate Compliance Programs (ECCP) that (1) reflect the DOJ’s increased scrutiny over corporate compensation programs and (2) provide new guidance on how companies manage policies for personal devices and third-party messaging platforms should structure. In addition, DAG Monaco announced—and AAG Polite later expanded on this—the DOJ’s “first” Pilot Program on Compensation Incentives and Reclaims (Pilot Program). This three-year pilot program consists of two parts. First, any corporate criminal law order must mandate that the company develop compliance-promoting criteria within its compensation and bonus systems. Second, the Trial Chamber will grant reduced fines to companies if they attempt (even unsuccessfully) to recover corporate compensation from wrongdoers. Both announcements are the DOJ’s latest and are designed to emphasize individual accountability and encourage companies to improve their compliance programs — a critical aspect of the DOJ’s overarching push for companies to disclose, cooperate, and take remedial action against criminal conduct.
The 2023 Revision of the ECCP clarifies how the DOJ evaluates companies’ compensation structures and their approach to the use of personal devices, communication platforms, and messaging applications when evaluating potential solutions. The ECCP continues the DOJ’s struggle with using personal devices and communicating through third-party messaging applications, building on the 2020 and 2017 changes. For both compensation and communications policies, the DOJ emphasizes tracking metrics related to how an organization’s policies work in practice as one of the hallmarks of a good compliance program.
Third-Party Personal Devices and Messaging
The revisions now clarify that companies are expected to ensure that business-related electronic data and communications are accessible and accessible for company retention. Prosecutors will now consider various factors to determine whether a company’s policies are sufficient, including how those policies were communicated to employees, the existence of deterrents and disciplinary procedures for employees who violate the policy, and evidence for consistent enforcement. Policies must be “tailored to the organization’s risk profile and specific business needs.” The revised ECCP specifically points out the need to properly assess an organization’s Bring Your Own Device (BYOD) policies and how it handles ephemeral messaging apps.
Specifically, AAG Polite said that during an investigation, the DOJ will not take at face value a company’s allegations that it cannot access or create third-party messages. Instead, prosecutors will question the company’s retention and deletion policies, as well as its ability to access third-party personal devices and messages. If the answers are inadequate or unsatisfactory, the company’s chances of finding a favorable solution may decrease.
Compensation structures and consequence management
The revised ECCP is also intended to encourage companies to structure their executive compensation programs in a way that rewards a good compliance culture and penalizes the failure to foster such a culture. Establishing incentives for compliance and deterrents for non-compliance have long been recognized as hallmarks of an effectively implemented compliance program. Now, the ECCP clarifies that when assessing whether a company has established appropriate incentives for compliance, the DOJ will consider whether the company designed its compensation system so that “certain compensation tied to conduct that is consistent with company values and policies may be deferred or deposited”. Similarly, prosecutors are encouraged to check whether a company’s policies include “provisions for redress or reduction of damages for compliance violations or misconduct” and whether such provisions are actively enforced. In line with those sticks, the revised ECCP also addresses carrots – enshrining a company’s importance of positive incentives for compliance, “such as promotions, rewards and bonuses for improving and developing a compliance program or demonstrating ethical leadership” and encouraging prosecutors to “examine whether a company has made compliance work a means of career advancement, provided managers and employees with opportunities to serve as compliance “champions,” or made compliance an important metric for managerial bonuses.”
Compensation Pilot Program
Although separate from the ECCP, the pilot program also focuses on using executive compensation to both deter and discourage wrongdoing and represents an important step toward the DOJ’s stated goal of lifting the burden of criminal fines from shareholders shift to the culpable executives.
The first component of the pilot program requires any company entering into a corporate resolution with the DOJ Criminal Division to develop compliance-related criteria within its compensation system “to reward ethical behavior and punish and deter misconduct.” Prosecutors have broad discretion to make appropriate requests based on the specific facts and circumstances of the case and the company’s existing compensation program. DAG Monaco cited the recent Danske Bank Plea Agreement as evidence that prosecutors are already asking companies to implement pay changes. There, the DOJ required Danske to implement a revised executive appraisal system and bonus system “so that every executive at the bank is evaluated on what the executive has done to ensure that the executive’s business or department” meets relevant compliance – conforms to guidelines. If the manager receives an insufficient score, they are not eligible for a bonus that year.
The second component of the pilot program is designed to encourage companies to seek redress from wrongdoers and individuals who knew or were willingly blind to wrongdoing and had oversight authority over guilty individuals or businesses. Now, companies that want to reclaim compensation will receive “fine reduction equal to the amount of compensation reclaimed within the settlement conditions”. As an added incentive, the company may keep any compensation it successfully recovers—the money recovered need not be paid to the DOJ as part of the resolution. For companies that are pursuing recoveries in good faith but are unable to recover money, the DOJ may still offer a fine reduction of up to 25% of the compensation sought.
Along with the ECCP revisions addressing compensation structures and compliance management, the DOJ’s new pilot program delivers on DAG Monaco’s promise to revise the Department’s policies to better reflect the principles of individual accountability and corporate transparency. As she noted in her speech last week: “[n]With direct and tangible financial incentives, everything attracts attention or requires personal investment, such as
The Monaco and Polite speeches, the pilot program and ECCP revisions, and the recently announced U.S. Attorneys’ Voluntary Self-Certification Policy and Corporate Enforcement Policy (CEP) are just the latest drumbeats in what has become the DOJ’s constant refrain: it commits , aggressively pursue corporate crime and those responsible, but companies can avoid criminal penalties if they come forward, cooperate, and take remedial action. An effective compliance program is not only critical to preventing criminal behavior, but also to ensuring that a company is well-positioned to identify bad things, remediate them, and achieve the best possible response when they do happen. Accordingly, companies should continue to monitor the revised DOJ guidance and consider incorporating updated recommendations into their compliance programs. Organizations in the process of overhauling their compliance programs should now pay particular attention to policies related to third-party personal devices and messaging platforms. Organizations should also consider reviewing their existing executive appraisal and compensation systems to ensure executives are incentivized to foster a culture of compliance. And those companies without formal compensation recovery policies should consider implementing changes that put the company in the best possible position to recover compensation from individual wrongdoers.