In Its Battle Against Corporate Crime, DOJ Targets Executive Compensation, Encrypted Messaging Apps, and National Security

The Justice Department’s top brass traveled to the American Bar Association’s annual white collar crime conference in Miami last week to enlist business partnership in DOJ’s battle against corporate crime. Deputy Attorney General Lisa Monaco, Criminal Division Assistant Attorney General Ken Polite, and numerous other high-ranking DOJ and SEC officials announced a series of enforcement initiatives to encourage companies to tie executive remuneration to compliance, to claw back compensation given to employees who participate in criminal conduct, to address employees’ use of encrypted and ephemeral (self-destructing) messaging applications in furtherance of misconduct, and to stop corporate crime impacting national security.

Executive Compensation and Claw Backs

Consistent with DOJ’s desire to shift the burden of wrongdoing from shareholders to employees directly responsible for the misconduct, DOJ has instituted a new three-year pilot program focused on rewarding companies that encourage employees to comply with the law and that punish and deter those who don’t. In formulating criminal resolutions for companies, DOJ will closely scrutinize whether compensation and bonuses of company executives and employees are tied to compliance. When such employee misconduct is identified, DOJ will reduce criminal fines it seeks by the amount of money companies claw back or withhold from employees who committed the wrongdoing or who knew about it and ignored it. In recognition of how challenging claw back efforts can be, DOJ will discount fines for good faith claw back efforts, even if unsuccessful.

Oversight and Preservation of Communications Over Messaging Apps

Federal investigations of suspected corporate wrongdoing have become increasingly hampered by employees’ use of encrypted and ephemeral communications over personal mobile devices and third-party messaging applications and platforms. To address this challenge, DOJ announced that when preparing plea offers, prosecutors must look at whether companies have adequate policies regulating and preserving such communications. Assistant Attorney General Polite warned that prosecutors will no longer accept company’s explanations at face value if they don’t produce such communications to investigators when requested.

Corporate Crime Impacting National Security

Prompted partly by Russia’s invasion of Ukraine, Deputy Attorney General Monaco also announced increased staffing and resources for investigating and prosecuting suspected corporate crimes impacting national security, including sanctions evasion, export control violations, and similar economic crimes. Monaco reiterated her belief that “sanctions are the new FCPA,” referring to DOJ’s efforts in recent years to enforce the Foreign Corrupt Practices Act.

Takeaways 

• DOJ’s increased emphasis on corporate self-policing and self-disclosure may be an implicit recognition that federal law enforcement resources can only go so far and DOJ is stretched thin investigating and prosecuting the January 6 attack and pandemic-related fraud. Perhaps as a result, DOJ is offering increased incentives to companies that collaborate with DOJ to prevent corporate crime and punish employees who are responsible for wrongdoing.
• Companies should ensure that compliance is factored into compensation and bonus programs, and be prepared to claw back compensation awarded to employees who commit misconduct or who allow it to happen on their watch.
• Companies should develop effective policies governing the use of personal mobile devices and messaging apps by employees for business communications. If those communications aren’t properly preserved, companies will face increased scrutiny from government prosecutors and investigators looking into corporate misconduct.
• Companies should ensure their compliance programs address potential sanctions and export controls violations.

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If you have any questions about these issues, please contact Mark Chutkow, Jonathan Feld, Howard Iwrey, or your Dykema relationship attorney.