US DOJ’S POLICY UPDATE ON CORPORATE CRIME: A SELF-POLICING PARADOX

On March 2 and 3, 2023, U.S. Deputy Attorney General (DAG) Lisa Monaco and U.S. Assistant Attorney General (AAG) Kenneth Polite delivered their remarks at the American Bar Association’s National Institute on White Collar Crime. During their speeches, they issued and updated the U.S. Department of Justice’s criminal policies on the federal prosecution of corporate crime.[1] These new policy changes are a testament to the ongoing efforts of the Department of Justice (DOJ) to strengthen its corporate criminal enforcement model, which was outlined in two memoranda issued on October 28, 2021, and September 15, 2022, respectively [the 2021 Monaco Memo and the 2022 Monaco Memo hereinafter].[2] The recent policy updates highlight the Department’s strong emphasis on promoting self-regulation and self-disclosure in corporate prosecution as well as its commitment of resources to corporate criminal enforcement. With the promulgation of these policies, the Department aims to fortify its current enforcement regime and influence corporate governance by prioritizing compliance and cooperation.

A critical aspect of the sweeping policy changes is the enhancement of the DOJ’s approach to corporate criminal enforcement through compliance. This approach traces its roots back to the 1999 Holder Memorandum, the DOJ’s first memorandum on corporate prosecution, which adopted the self-policing model prescribed in the 1991 U.S. Sentencing Commission’s Organizational Sentencing Guidelines.[3] Subsequent to the 1999 Holder Memo, several memoranda provided further guidance to U.S. Attorneys on how to consider compliance programs when making prosecutorial decisions regarding corporate crime and how to evaluate the effectiveness of compliance programs. In 2017, the Department released the first guidance document on compliance titled Evaluation of Corporate Compliance Programs (ECCP).[4] The significance of an effective compliance program and ethical culture in determining the disposition of corporate crime during enforcement actions was reiterated in the 2022 Monaco Memo. This Memo instructs prosecutors to evaluate the corporation’s commitment to fostering compliance “at all levels of the corporation”, both at the time of the offense and at the time of a charging decision.[5] Notably, it introduces additional metrics, including “compensation structures that promote compliance” and “use of personal devices and third-party application”, for prosecutors to evaluate the effectiveness of the compliance programs when determining the terms of a corporation’s resolution with the Department.[6] To provide more details about how to implement compliance promotion requirements, DAG Monaco, in her address, made reference to the launch of a three-year “Pilot Program” that mandates companies to build compliance criteria into their compensation systems and offers fine reductions to companies that take proactive steps to claw back compensation from individual wrongdoers.[7] As per AAG Polite’s remarks, the DOJ has made updates to the ECCP, incorporating the consideration of corporations’ policies on the use of personal devices and messaging applications[8] to ensure that “business-related electronic data and communications can be preserved and accessed”.[9]

A corresponding aspect of the recent updates is the Voluntary Self-Disclosure Policy (VSD).[10] According to the DAG Monaco’s speech, the VSD policy has been enhanced to be more “operative, predicable, and transparent” because “companies and counsel rely on the department to apply its policies transparently and consistently throughout the country.”[11] The clearly specified standards and predictable benefits for VSDs are expected to “provide clearer assurances and increased incentives for companies that come forward and self-report.”[12] Under the updated VSD policy, companies’ self-disclosure, full cooperation, and remediation of criminal conduct can make them eligible for exemptions from culpability and for reduced penalties. This can result in prosecutors dropping guilty pleas, waiving criminal penalties, recommending lessor penalties, and imposing no compliance monitorship.[13] The VSD policy, in conjunction with the guidance on compliance programs, empowers whistleblowers and encourages companies to take internal reporting more seriously. The VSD policy does not apply when a whistleblower brings a company’s misconduct to the United States Attorney’s Office (USAO) first.[14] In such a case, the company’s later disclosure will not qualify as a VSD, and it will lose the opportunity to receive credit. This VSD rule creates an incentive structure that encourages companies and their leadership to proactively deal with whistleblower reports rather than dismissing them. By restructuring the policies around self-disclosure, the role of whistleblowers shifts from an adversary to an ally to the company, thereby increasing protection for whistleblowers.

The updates of the DOJ’s policies are essentially a continuation of the compliance-based self-policing mode of corporate criminal enforcement outlined in the 1991 Organizational Sentencing Guideline. The “Carrot and Stick” approach was developed to reward compliance and cooperation while punishing misconduct with aggravating factors.[15] The recent DOJ’s policies have enhanced this self-policing model by introducing more detailed rules regarding the implementation of compliance and cooperation in corporate prosecution and punishment, but the essence of these policies remains true to the spirit of the 1991 Organizational Sentencing Guidelines. These policies have paved the way for further institutionalizing compliance and cooperation by modifying the incentive structures of both. As mentioned earlier, the VSD policy also contributes to fostering a friendly environment for whistleblower reporting and protection.

Yet, the growing leniency towards wrongdoing companies based on the recent policies may have transformed the enforcement landscape into “Carrot without Stick”. Notably, these policies were issued amid controversy over record-low corporate prosecutions under the Biden Administration,[16] continuing a pattern of lenient punishment observed during the Trump Administration[17], despite the rise in corporate fraud.[18] This stands in contrast to President Biden’s initiative to control corporate power at the beginning of his presidency [19] and the DOJ’s vision for a more stringent crackdown on corporate crime.[20] The focus on compliance programs, individual responsibility, and voluntary disclosure in exchange for exculpation and mitigation of punishment has rendered corporate criminal enforcement a “bargained-for exchange”, [21] a quid pro quo approach, and a type of “negotiated justice”.[22] An example mentioned by DAG Monaco, where the DOJ entered a deferral prosecution agreement with a Swiss multinational engineering company despite its criminal history,[23] demonstrates the DOJ’s prioritization of post-offense cooperation over penalizing recidivism. Indeed, this compromise on charging organizational culpability in exchange for voluntary disclosure is believed to “enabl[e] government to investigate and hold wrongdoers accountable more quickly than would otherwise be the case.”[24] However, whether these policy changes will necessarily lead to strengthened corporate prosecutions in the coming years remains a big question mark, as the anticipated crackdown to address the crisis of the underenforcement “hasn’t materialized.”[25] With the exceptionally low number of corporate crime cases each year, there is a risk of de facto abolition of corporate criminal liability in practice. This raises concerns about the limitations of the existing penal paradigm, characterized by cooperative partnerships between the government and businesses, on controlling corporate crime, as business organizations often mediate the effects of law and policies.[26] These policies can present challenges to the federal government’s ability to effectively control corporate power, as state actors may be susceptible to capture, collusion, and limited capacity under the partnership regime, lacking the necessary autonomy, independence, and neutrality to protect public interests against corporate misconduct.

The effectiveness of corporate criminal enforcement depends on the extent to which the current model can achieve the goals of preventing law violations, discouraging business practices conducive to unlawful conduct, and safeguarding public interests.[27] The recognition of the importance of internal control and organizational culture has greatly driven the development of compliance with corporate criminal laws and policies. Nonetheless, the realization of these goals is complicated by the conventional agency problem that grapples with the conflict of interest between individuals and organizations. The 2022 Monaco Memo has refocused the DOJ’s criminal policies on individual responsibility, reverting back to the principle underscored in the 2015 Yates Memo.[28] The DOJ’s renewed emphasis on individual responsibility aims to address concerns about the corporation being the scapegoat of individual culprits,[29] but it may not fully address the conundrum of individual employees being scapegoated by senior managers and executives or becoming victims of a culture of competition and profit maximization.[30] The recent DOJ policies promoting the compliance culture fall short of addressing the inherent conflict between business goals and ethical logic. Sociological research on organizational misconduct has identified that due to the existence of competing cultural values within organizations, deviant decisions that appear to be obvious to outsiders may conform to cultural mandates institutionalized in the business or industry, a phenomenon referred to as “the normalization of deviance”.[31] Meanwhile, compliance programs, seen as “symbolic structures” of conformity and due diligence,[32] can provide legitimacy to the business entity and safeguard the interests of the management, who are the key players in criminal investigations and negotiations with enforcement agencies. Therefore, under the existing power structure, the legal formality of compliance allows companies and their leadership to shield themselves from legal risks, while imposing undue burdens and risks on mid-and-local-level employees. The failure to punish the crimes of the powerful and the trivialization of organizational and economic structures as criminogenic can impede the current enforcement model from effectively achieving the goals for corporate prosecution. Furthermore, how to build effective compliance programs in business practices awaits further development.[33]

Corporate criminal enforcement remains a topic of considerable debate among scholars and commentators.[34] Awareness of the institutional challenges calls for a critical reassessment of the current model and radical reform of corporate criminal policies and practices, particularly given the concentration of economic power. Effective corporate crime control necessitates taming corporate power, moderating the business logic, and holding senior managers and executives accountable. This requires moving beyond unquestioned partnerships between the government and corporations based on the idea of good corporate citizenship.[35] Compliance, after all, is primarily business-initiated and oriented. In addition to increasing government capacity and enforcement resources, empowering state actors to independently check and balance corporate power is of great importance. Future policies should prioritize strengthening interventionism through third-party monitorship and independent auditing. Developing more robust corporate and executive accountability programs will be essential in creating a more effective system to combat corporate misconduct.

[1] U.S. Department of Justice (2023): Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime, 02/03/2023. URL: https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-remarks-american-bar-association-national[accessed 24/07/2023]. U.S. Department of Justice (2023): Assistant Attorney General Kenneth A. Polite, Jr. Delivers Keynote at the ABA’s 38th Annual National Institute on White Collar Crime, 03/03/2023. URL: https://www.justice.gov/opa/speech/assistant-attorney-general-kenneth-polite-jr-delivers-keynote-aba-s-38th-annual-national [accessed 24/07/2023]. [2] U.S. Department of Justice (2021): Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies, 28/10/2021. URL: https://www.justice.gov/dag/page/file/1445106/download [accessed 24/07/2023]. U.S. Department of Justice (2022): Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group, 15/09/2022, URL: https://www.justice.gov/opa/speech/file/1535301/download [accessed 24/07/2023]. [3] U.S. Department of Justice (1999): Bringing Criminal Charges Against Corporations, 16/06/1999. URL: https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF [accessed 24/07/2023]. U.S. Sentencing Commission (1991): Chapter Eight – Sentencing of Organizations, 01/11/1991. URL: https://www.ussc.gov/sites/default/files/pdf/guidelines-manual/1991/manual-pdf/Chapter_8.pdf. Also see Murphy, D. E. (2002). The Federal Sentencing Guidelines for Organizations: Decade of Promoting Compliance and Ethics. Iowa Law Review, 87(2), 697-720. [4] U.S. Department of Justice Criminal Division Fraud Section (2017): Evaluation of Corporate Compliance Programs, 08/02/2017. See National Law Review: DOJ’s Recent Guidance on Compliance Programs, 16/03/2017. URL: https://www.natlawreview.com/article/doj-s-recent-guidance-compliance-programs [accessed 31/07/2023]. [5] op. cit. 2. [6] op. cit. 2. [7] op. cit. 1. Also see U.S. Department of Justice (2023): The Criminal Division’s Pilot Program Regarding Compensation Incentives and Clawbacks, 03/03/2023. URL: https://www.justice.gov/opa/speech/file/1571906/download [accessed 24/07/2023]. [8] U.S. Department of Justice Criminal Division Fraud Section (2023): Evaluation of Corporate Compliance Programs, 03/2023. URL: https://www.justice.gov/criminal-fraud/page/file/937501/download [accessed 31/07/2023]. [9] op. cit. 1. [10] op. cit. 1. [11] op. cit. 1. [12] op. cit. 1. [13] U.S. Department of Justice (2023): United States Attorneys’ Offices Voluntary Self-Disclosure Policy. URL: https://www.justice.gov/d9/2023-03/usao_voluntary_self-disclosure_policy_2.21.23.pdf [accessed 24/07/2023]. [14] op. cit. 13. [15] U.S. Sentencing Commission (2022): The Organizational Sentencing Guidelines: Thirty Years of Innovation and Influence, August 2022. URL: https://www.ussc.gov/sites/default/files/pdf/research-and-publications/research-publications/2022/20220829_Organizational-Guidelines.pdf [accessed 24/07/2023]. Also see Coffee Jr, J. C (1990). “Carrot and Stick” Sentencing: Structuring Incentives for Organizational Defendants. Federal Sentencing Reporter, 3(3), 126-129. [16] See Claypool, R. (2022): Enforcement Abyss: As Corporate Prosecutions Plunge, Biden’s Department of Justice Pledges Corporate Crime Enforcement Surge, 25/04/2022. URL: https://www.citizen.org/article/enforcement-abyss/ [accessed 24/07/2023]. TRAC (2022): Corporate and White-Collar Prosecutions Hit New All-Time Lows in FY 2022. URL: https://trac.syr.edu/reports/708/ [accessed 25/07/2023]. [17] Garrett, B. L. (2020). Declining Corporate Prosecutions. American Criminal Law Review, 57(1), 109-156. Coffee Jr, J. C. (2020). Corporate Crime and Punishment: The Crisis of Underenforcement. Berrett-Koehler Publishers. [18] Lund, D. S., & Sarin, N. (2021). Corporate Crime and Punishment: An Empirical Study. Texas Law Review, 100(2), 285-352. [19] The White House (2021): FACT SHEET: Executive Order on Promoting Competition in the American Economy, 09/07/2021. URL: https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/ [accessed 24/07/2023]. Also see Egan, L. & Shabad, R. (2021): Biden Signs Sweeping Order Aimed at Limiting Corporate Power, 09/07/2021. URL: https://www.nbcnews.com/politics/white-house/biden-sign-sweeping-order-boost-competition-u-s-economy-n1273451 [accessed 31/07/2023]. [20] U.S. Department of Justice (2022): Deputy Attorney General Lisa O. Monaco Delivers Remarks on Corporate Criminal Enforcement, 15/09/2022. URL: https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-delivers-remarks-corporate-criminal-enforcement [accessed 31/07/2023]. [21] Laufer, W. S. (2002). Corporate Prosecution, Cooperation, and The Trading of Favors. Iowa Law Review, 87(2), 643-668, p. 646. [22] King, C., & Lord, N. (2018). Negotiated Justice and Corporate Crime: The Legitimacy of Civil Recovery Orders and Deferred Prosecution Agreements. Springer. [23] op. cit. 1. [24] op. cit. 13. [25] Corporate Crime Reporter (2023): Corporate Crime Enforcement Down Under Biden, 22/07/2023. URL: https://www.corporatecrimereporter.com/news/200/corporate-crime-enforcement-down-under-biden/#:~:text=That%20report%20found%20that%20only,previous%2025%20years%20(181) [accessed 25/07/2023]. [26] See Edelman, L. B. (1992). Legal Ambiguity and Symbolic Structures: Organizational Mediation of Civil Rights Law. American Journal of Sociology, 97(6), 1531-1576. [27] U.S. Department of Justice (2023): Justice Manual – 9-28.000 – Principles of Federal Prosecution of Business Organizations, 03/2023. URL: https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations [accessed 31/07/2023]. [28] U.S. Department of Justice (2015): Individual Accountability for Corporate Wrongdoing, 09/09/2015. URL: https://www.justice.gov/archives/dag/file/769036/download [accessed 25/07/2023]. [29] op. cit. 2. In terms of the discussion about corporations being a scapegoat, please see Garrett, B. L. (2015). The Corporate Criminal as Scapegoat. Virginia Law Review, 101(7), 1789-1854. [30] Laufer, W. S. (2008). Corporate Bodies and Guilty Minds. University of Chicago Press. Also see Laufer, op. cit. 21. He introduced the concept of reverse whistleblowing, which refers to “when an organization, typically through the acts of senior management, identifies culpable employees and offers evidence against them in a trade with prosecutors for corporate leniency or possible amnesty” (pp. 648-49). [31] See Vaughan, D. (1996). The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. University of Chicago press. Also see Vaughan, D. (2007). Beyond Macro-and Micro-Levels of Analysis, Organizations, and The Cultural Fix. In Pontell, H. N. & Geis G. (Eds). International Handbook of White-Collar and Corporate Crime, pp. 3-24. Springer. [32] op. cit. 26. [33] Chen, H. & Soltes, E. (2018). Why Compliance Programs Fail—And How to Fix Them. Harvard Business Review, 96(2), 116-125. Also see Chen, H. (2022). The Use and Measurement of Compliance Programs in the Legal and Regulatory Domains. In Rorie, M., & van Rooij, B. (Eds.). Measuring Compliance: Assessing Corporate Crime and Misconduct Prevention, pp. 25-54. Cambridge University Press. [34] See Garrett, B. (2014). Too Big to Jail: How Prosecutors Compromise With Corporations. Harvard University Press. See Eisinger, J. (2017). The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives. Simon and Schuster. Taub, J. (2020). Big Dirty Money: The Shocking Injustice and Unseen Cost of White Collar Crime. ‎Viking. [35] op. cit. 1. For instance, AAG Polite, in his speech at the National Institute of White Collar Crime, highlighted the three-year Pilot Program on compliance as an example of incentivizing “good corporate citizenship”.

Suggested citation

Bluebook: Li Huang, US DOJ’s Policy Update on Corporate Crime: A Self-Policing Paradox, CORPORATE CRIME OBSERVATORY, (September 6, 2023), www.corporatecrime.co.uk/post/doj-monaco-memo

Harvard: Huang, L. (2023) ‘US DOJ’s Policy Update on Corporate Crime: A Self-Policing Paradox’. Corporate Crime Observatory. Available at: www.corporatecrime.co.uk/post/doj-monaco-memo

OSCOLA: Li Huang, ‘US DOJ’s Policy Update on Corporate Crime: A Self-Policing Paradox’, (Corporate Crime Observatory, 6 September 2023), www.corporatecrime.co.uk/post/doj-monaco-memo

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