By Mark S. Nelson, J.D.
The DOJ’s Deputy Assistant Attorney General Lisa H. Miller recently told an audience at the University of Southern California Gould School of Law that corporate resolutions are “not ‘free passes,’” while also noting the many incentives the DOJ has put forth to coax corporations to be more proactive in their compliance programs with any eye to self-reporting suspected wrongdoing. In her remarks, Miller also offered some observations about key developments in 2022’s corporate cases.
Looking ahead in 2023. According to Miller, international corruption will remain a high priority for the DOJ in 2023. She described these cases as “challenging and resource intensive.” Miller also noted the many “carrots” that the DOJ has now presented to companies to encourage self-reporting. Miller said the carrots “have never been juicier.”
On that last point, Miller reiterated that corporate resolutions should not be considered “free passes” and that companies should carefully mull the DOJ’s recent changes to its Corporate Enforcement Policy (CEP).
By way of background, the DOJ’s Kenneth A. Polite, Jr., Assistant Attorney General, gave a speech at Georgetown Law in mid-January 2023 in which he outlined recent changes to the Criminal Division’s Corporate Enforcement Policy (CEP). The revisions follow-up on other changes that established a presumption that the DOJ would decline to prosecute a corporation if certain criteria are met coupled with efforts to have all DOJ divisions adopt similar policies. Polite, however, emphasized that a declination or DPA or NPA is not an easy default but must be earned, and that all companies begin such process with zero cooperation credit.
As for the latest changes, Polite first said that, among other things, even when aggravating factors exist and the presumption of a declination is unavailable, prosecutors still may decline to prosecute if: (1) the company’s voluntary self-disclosure was made immediately upon learning of an allegation of misconduct; (2) at both the time of the misconduct and the time of the disclosure, the company had an effective compliance program and system of internal accounting controls that led it to identify and voluntarily disclose the misconduct; and (3) the company provided extraordinary cooperation and undertook extraordinary remediation.
Second, Polite said that where a company otherwise fully complied and cooperated, but a criminal resolution is warranted, prosecutors could recommend to a sentencing court that the company get 50 percent to 75 percent off the low end of the U.S. Sentencing Guidelines fine range, except in the case of a criminal recidivist.
Miller suggested that the revised CEP gives companies a compelling reason to make voluntary self-disclosures of suspected wrongdoing. Miller explained that the DOJ’s guidelines are intended to benefit “good corporate citizens” but are balanced to ensure that companies can enter high-risk markets, make acquisitions of risky companies, and then cooperate, remediate, and disclose any wrongdoing.
“A final note: while these revisions just came out, last year’s resolutions show how we carry out the division’s stated principles in practice,” said Miller. “Companies that do not self-disclose egregious and pervasive misconduct are more likely to be required to plead guilty and face steep monetary penalties…”
Moreover, Miller said that the DOJ's Criminal Division is mulling additional tweaks to its corporate policies. She said the areas under consideration include possible changes to the DOJ's framework for evaluating corporate compliance programs to better account for the use of personal devices and third-party messaging applications. These apps typically offer strong encryption and/or the potential for messages to be ephemeral such that they leave little or no trace that would reveal their contents.
In September 2022, the SEC suggested a pathway to civil liability in this context when 15 broker-dealers and an affiliated investment adviser agreed to pay a combined $1.1 billion to settle charges that they had violated the recordkeeping provisions of the federal securities laws by allowing employees to pervasively use off-channel communications. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, remarked via press release that “[o]ther broker dealers and asset managers who are subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies.”
Messaging apps are not the only area the DOJ may be looking into. Miller said the department also was considering changes to how it evaluates executive compensation policies.
Looking back at 2022. With respect to 2022, Miller said that the DOJ charged 280 individuals and obtained 340 convictions. The agency also concluded seven corporate resolutions that generated penalties of $2.3 billion.
Miller’s remarks covered a wide swath of DOJ activity but, for purposes of securities practitioners, her comments on the DOJ’s Market Integrity and Major Frauds Unit are likely the most relevant. Miller summarized the key points from the DOJ’s JPMorgan matter in which three former directors attempted to manipulate gold and silver futures contracts via spoofing. In addition to holding individuals accountable, that matter also produced a parent-level DPA that required JPMorgan to pay $920 million.
Miller explained that the JPMorgan matter was an example of the DOJ’s parallel goals of holding individuals responsible and pursuing corporate entities when an institution’s liability derives from individuals’ conduct.
The DOJ, Miller said, also pursued similar cases that involved kickbacks and commodities insider trading, pump-and-dump schemes, securities fraud, and crypto fraud. In the case of crypto fraud, Miller had this to say: “Crypto markets can be volatile yet alluring to many. There has been some speculation as to how cryptocurrencies should be classified and regulated, but from our vantage point, a grift is a grift.”
Other DOJ highlights from 2022, Miler said, included the 1MDB bribery scheme, in which Goldman Sachs agreed to pay $2.9 billion as part of a global resolution with U.S. and foreign regulators. Another high-profile case was that of Glencore International AG, which allegedly engaged in “one of the most pervasive FCPA schemes” that also became the largest criminal enforcement of commodities price manipulation conspiracy in oil markets. A Glencore U.S.-based entity agreed to plead guilty to benchmark manipulation as part of the resolution of the case.