On March 3, 2023, Assistant Attorney General (“AAG”) Kenneth A. Polite announced revisions to two Department of Justice (the “DOJ”) Criminal Division policies and the launch of a new pilot program, as well as a forthcoming re-issuance of the FCPA Resource Guide in Spanish later this month.[1]  His announcement follows a speech by Deputy Attorney General (“DAG”) Lisa O. Monaco the day before previewing the policy changes.[2]  In parallel, the DOJ published (1) a new Compensation Incentives and Clawback Pilot Program (the “Pilot Program”),[3] (2) revised Evaluation of Corporate Compliance Programs (“ECCP”) guidance,[4] and (3) a revised Memorandum on the Selection of Monitors in Criminal Division Matters (the “Corporate Monitor Memorandum”).[5]

The two speeches and various policy revisions underscore the DOJ’s focus on individual accountability and seek to promote a corporate culture of compliance.[6]  In her speech, DAG Monaco referred to individual accountability as “the most important priority in corporate enforcement” and AAG Polite explained that it is also “one of the most pressing challenges” for the DOJ that the revised policies aim to address.[7]  The policy revisions enhance individual accountability by tying compliance to compensation, and ensuring that companies are better placed to retain and preserve data from employees. 

I. Compensation and Clawbacks

As DAG Monaco noted in her speech, the DOJ wants companies to ensure that employees are personally invested in promoting compliance by “having skin in the game.”  To that end, the DOJ will reward companies that include and enforce cancellation or so-called “clackback provisions” in employment contracts, bonus, or deferred compensation agreements, and that use promotions, bonuses, or awards to reward employees that champion compliance.[8]  As the DOJ has previously stated, this policy focus is intended to shift the burden of corporate wrongdoing away from shareholders onto those directly responsible.[9]  

First, AAG Polite highlighted that prosecutors will more closely consider compensation structures and consequence management[10] when assessing the effectiveness of companies’ corporate compliance programs under the revised ECCP.  Key metrics prosecutors will evaluate include (1) the transparency of a company’s design and implementation of its compliance-promoting compensation system; (2) the breadth of disciplinary actions—including compensation clawbacks—available to management to enforce compliance, and their consistent enforcement across different geographies and levels of the organization; and (3) the tracking of relevant compliance-related metrics such as the percentage of compensation subject to cancellation or recoupment from those engaged in wrongdoing.[11]

Second, both DAG Monaco and AAG Polite announced the DOJ Criminal Division’s launch of a three-year Pilot Program.[12]  The Pilot Program requires companies to implement compliance-related criteria in their compensation and bonus systems when entering into a resolution with the DOJ Criminal Division.[13]  Companies will need to report annually on the following, and possibly additional, criteria during the resolution term: (1) prohibition on bonuses for employees who do not satisfy compliance performance requirements; (2) disciplinary measures for employees who violate the law, and supervisors of such employees or the relevant business area if they knew of, or were willfully blind to, the misconduct; and (3) incentives for employees who demonstrate full commitment to compliance processes.[14]  In her speech, DAG Monaco illustrated the policy change with the example of Danske Bank, which agreed to revise its performance review and bonus system as part of its plea agreement with the DOJ in December 2022—“Danske executives with a failing score for compliance will also fail to secure a bonus.”[15]

As a financial incentive, the DOJ Pilot Program offers to further reduce fines for a company up to the amount of compensation it is able to claw back from employees during the resolution term, provided the company fully cooperates and timely and appropriately remediates.[16]  In practice, at the time of resolution, the company will have to pay the DOJ the amount of the applicable fine reduced by the amount of compensation the company is trying to claw back.[17]  At the conclusion of the resolution term, to the extent the company was not able to claw back a portion of what it sought to claw back, it will have to pay that amount back to the DOJ.[18]  

The use of clawback provisions may create several challenges for companies.  First, it may increase companies’ litigation costs in attempting to claw back compensation.  In recognition of this challenge, the Pilot Program allows prosecutors to reward a company with a fine reduction of up to 25% of the amount it sought to claw back if the company made a good faith attempt but failed to claw it back, or if the company is likely to successfully claw back the compensation shortly after the end of the resolution term.[19]  Second, companies will need to balance the inclusion of clawback provisions in employment contracts with the need to attract and retain talent.  One unintended consequence of the Pilot Program may be the increased transaction costs in negotiating contracts with prospective employees, mainly management, and in litigating such employment contracts where an employee refutes the company’s invocation of its clawback provision.[20]  Companies will need to find ways to square clawback clauses, which remove funding from employees engaged in alleged wrongdoing (or even the supervision of employees engaged in alleged wrongdoing if they were alleged to be willfully blind to the misconduct),[21] with indemnification clauses, which provide funding to employees to defend themselves against allegations of wrongdoing.

II. Data Retention

In his speech, AAG Polite addressed the need to adapt to the realities of the increasingly ubiquitous use of various communications platforms and messaging applications.[22]  As a result, under the revised ECCP, prosecutors will consider the company’s policies and procedures governing the use of personal and corporate devices, and the retention of electronic messages, including ephemeral ones.[23]  Key metrics prosecutors will evaluate include:

  • The extent to which a company’s policies and procedures make business-related electronic data accessible and amenable to preservation—including for devices subject to a “bring your own device” (“BYOD”) program or devices that have been replaced. 
  • The degree to which non-accessibility impairs the company’s ability to pursue an effective compliance program and conduct appropriate investigations.
  • The notice that companies give employees about these electronic data policies and procedures, and the consequences that employees who refuse the company access to business-related communications face.[24]

In his speech, AAG Polite noted that the DOJ would not accept a refusal to produce communications from third-party messaging applications “at face value.”[25]  He further cautioned that a company’s answers to questions about accessibility of communications, or the lack of answers, may well affect the criminal resolution a company will have to enter into with the DOJ.[26]  More than ever, companies with employees operating across multiple jurisdictions will need to consider how to comply with both recordkeeping requirements for third-party messaging apps and conflicting data privacy laws in other jurisdictions.

Conclusion

There are several key takeaways from these policy updates with significant repercussions for companies and their employees:

  • First, the DOJ is focused on strengthening individual accountability by having companies claw back compensation to punish misconduct, and by expecting companies to access and make available all records of employees’ communications, including on ephemeral messaging applications.
  • Second, the new guidance recognizes the importance of and provides transparency about how prosecutors evaluate companies’ use of compensation and data retention policies for compliance purposes. 
  • Third, companies will need to navigate the tension between seeking to claw back compensation from employees while honoring indemnification obligations under employment contracts.[27]  Corporate practitioners will also want to consider how the inclusion and enforcement of clawback provisions will affect their ability to cooperate with corporate investigations, both in terms of gaining credit with authorities and also in being able to encourage or require employee cooperation through contract.  One unintended consequence of these changes will be the negotiation of employment contracts, where employees (especially executives with greater levels of supervisory responsibility) will perceive such clawback provisions as an additional risk to be mitigated or otherwise negotiated against higher compensation or other benefits. 
  • Fourth, companies should be proactive in ensuring their compensation schemes are aligned with compliance goals—imposing financial penalties for misconduct and rewarding compliance-enhancing behavior—and that these schemes are enforced effectively and consistently across the organization.  Companies will also want to ensure that their document retention policies cover third-party messaging applications.  In practice, it seems very likely that companies will react by centralizing all record retention to facilitate investigations and gain cooperation credit.  This may be especially challenging for multinational corporations navigating data privacy regimes across multiple jurisdictions.[28]
  • Fifth, for companies that do not update their compensation and data retention systems in accordance with the DOJ’s policy revisions, the DOJ is more likely to impose a corporate monitor as part of a criminal resolution.[29]

[1] See Speech, “Assistant Attorney General Kenneth A. Polite, Jr. Delivers Keynote at the ABA’s 38th Annual National Institute on White Collar Crime” (Mar. 3, 2023), https://www.justice.gov/opa/speech/assistant-attorney-general-kenneth-polite-jr-delivers-keynote-aba-s-38th-annual-national (“Polite Speech”).

[2] See Speech, “Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime” (Mar. 2, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-remarks-american-bar-association-national (“Monaco Speech”).

[3] See Dep’t of Just., The Criminal Division’s Pilot Program Regarding Compensation Incentives and Clawbacks (Mar. 3, 2023), https://www.justice.gov/opa/speech/file/1571906/download (“Pilot Program”).

[4] See Dep’t of Just., Evaluation of Corporate Compliance Programs (updated Mar. 2023), https://www.justice.gov/criminal-fraud/page/file/937501/download (“ECCP”).

[5] See Memorandum from AAG Kenneth A. Polite, “Revised Memorandum on Selection of Monitors in Criminal Division Matters,” Mar. 1, 2023, https://www.justice.gov/criminal-fraud/file/1100366/download (“Corporate Monitor Memorandum”).

[6] DAG Monaco noted the two areas of focus for the DOJ in promoting and supporting a culture of corporate compliance: (1) a cross-department approach to promoting voluntary self-disclosure, and (2) compensation structures as a way to foster responsible corporate behavior.  This Alert Memorandum focuses on the latter.  For a discussion of the former, consider consulting our Alert Memorandum, “U.S. Attorney’s Offices Issue Nationwide Corporate Voluntary Self-Disclosure Policy,” dated Feb. 27, 2023, available at https://www.clearygottlieb.com/-/media/files/alert-memos-2023/us-attorneys-offices-issue-nationwide-corporate-voluntary-self-disclosure-policy.pdf.

[7] See Polite Speech (“Because the highest priority we have – and one of the most pressing challenges we face – investigating and prosecuting white collar cases is ensuring individual accountability.”)

[8] Id. at 13-14.

[9] See Monaco Speech.

[10] As defined in the ECCP, the term “consequence management” refers to all procedures used to identify, investigate, discipline, and remediate violations of law, regulation, or policy—signaling that the DOJ does not consider disciplinary actions in isolation.[10]  Id. at 12.  The change is visible in the ECCP’s renaming of a subsection previously titled “Incentives and Disciplinary Measures” to “Compensation Structures and Consequence Management.”  Id.

[11] See ECCP at 12-14.

[12] The Pilot Program was created pursuant to a September 15, 2022 memorandum directing DOJ components to revise their corporate criminal enforcement policies.  See Pilot Program at 1.

[13] Pilot Program at 1-2.  Prosecutors will use their discretion to determine appropriate criteria based on an evaluation of the company’s existing compensation program, taking into account applicable domestic and foreign law.  Id. at 2.

[14] Id.

[15] Monaco Speech; DOJ Press Release, Danske Bank Pleads Guilty to Fraud on U.S. Banks in Multi-Billion Dollar Scheme to Access the U.S. Financial System (Dec. 13, 2022), https://www.justice.gov/opa/pr/danske-bank-pleads-guilty-fraud-us-banks-multi-billion-dollar-scheme-access-us-financial.

[16] The fine reduction is in addition to what companies may receive under the revised DOJ Corporate Enforcement Policy.  See Dep’t of Just., Criminal Division Corporate Enforcement and Voluntary Self -Disclosure Policy, https://www.justice.gov/opa/speech/file/1562851/download (“CEP”); see also our Alert Memorandum on this topic, “U.S. Department of Justice Announces Revisions to Corporate Criminal Enforcement Policy,” dated Jan. 23, 2023, available at https://www.clearygottlieb.com/news-and-insights/publication-listing/us-department-of-justice-announces-revisions-to-corporate-criminal-enforcement-policy.

[17] Id.

[18] Id.

[19] Id. at 2-3.

[20] Such litigation will be public and have at its core the subject matter of the DOJ’s and the company’s investigation into wrongdoing.  See, e.g.,  United States v. Coburn, No. CV219CR00120KM, 2022 WL 357217, at *7 (D.N.J. Feb. 1, 2022) (finding “waive[r] as to all [investigation] memoranda, notes, summaries, or other records of the interviews themselves,” regardless of whether the interview summaries were conveyed orally or in writing and that “to the extent the summaries directly conveyed the contents of documents or communications, those underlying documents or communications themselves are within the scope of the waiver”). 

[21] Notably, companies must seek to claw back compensation not only from employees who engaged in wrongdoing, but also from those who supervised such employees or had supervisory authority over the business area engaged in the misconduct if the DOJ determines that they were at least willfully blind to it.  See Pilot Program at 2.

[22] See Polite Speech.

[23] See ECCP at 17-18.

[24] Id.

[25] Id.

[26] Id.

[27] Overall, individuals accused of misconduct are more likely than corporations to litigate actions than to settle with the DOJ.  One consequence of the Pilot Program, ECCP and the recently revised Corporate Enforcement Policy may be that individuals are less likely to litigate as a result of having reduced access to indemnified representation.

[28] Companies’ retention policies may require that they keep such third-party messaging platform records for years, including after the employment relationship is terminated.  Employees may be reluctant to embrace the increased submission of all data to their employers unless there are ways to divide business records from personal records (for example, through a separate work phone and personal phone). 

[29] In his revised Corporate Monitor Memorandum, AAG Polite made three revisions that stand out.  The Memorandum (1) clarifies that prosecutors should not apply a presumption against compliance monitors, but instead determine the need on a case-by-case basis based on a list of ten non-exhaustive factors that prosecutors will consider when assessing the need for and scope of responsibilities of a monitor; (2) complements existing DOJ monitorship guidance by requiring that the submission or selection of a monitor candidate be made in keeping with the DOJ’s commitment to diversity, equity, and inclusion—a requirement that will now be included in corporate resolution agreements as well; and (3) provides that the monitor, their firm, and anyone assisting them (as opposed to just the monitor) will not enter into a professional relationship with the company for a period of three years (as opposed to two years) from the date of the termination of the monitorship.  See Corporate Monitor Policy; Polite Speech.