Attorney General Merrick Garland has confirmed that a top priority of the United States Department of Justice is prosecuting white collar crimes. In his remarks to the American Bar Association Institute on White Collar Crime on March 3, 2022, the Attorney General explained that “the prosecution of corporate crime is a Justice Department priority” and, more specifically, “the Department’s first priority in corporate criminal cases is to prosecute the individuals who commit and profit from corporate malfeasance.” He argued that the most important reason for this focus on individual prosecutions is to preserve “Americans’ trust in the rule of law,” which “requires that there not be one rule for the powerful and another for the powerless; one rule for the rich and another for the poor.”
Attorney General Garland’s remarks echoed those of his Deputy Attorney General, Lisa Monaco, at the ABA White Collar Crime Conference in late 2021. Deputy Attorney General Monaco likewise emphasized prosecuting individuals who commit corporate crimes, particularly C-suite executives and “corporate gatekeepers,” referring to in-house counsel and officers who direct and monitor corporate compliance efforts. She acknowledged that such prosecutions “are among some of the most difficult that the department brings,” but DOJ is convinced that holding upper level executives responsible will encourage change and good behavior throughout the ranks of the subject company and in other companies.
Attorney General Garland shared some statistics that evidence his Department’s shift in priorities. He stated that U.S. Attorneys’ Offices across the country charged 5,521 individuals with white collar crimes in Fiscal Year 2021, a 10% increase over the previous year. “2021 was also one of the busiest trial years on record for the Criminal Division’s Fraud Section. In 2021, Fraud Section prosecutors publicly charged 333 individuals, convicted 296 individuals by plea, tried 23 cases in 18 districts, and secured convictions of 30 individuals at trial.” The Antitrust Division and the Environment and Natural Resources Division are likewise emphasizing prosecuting individuals for white collar crimes.
What can a corporate client do to mitigate risk in this environment of heightened scrutiny? One possible answer relates to an important trend embedded within the DOJ’s recent activities: the government is targeting companies and individuals that fail to design or implement adequate corporate compliance programs. In a recent example, JPMorgan admitted, in response to a DOJ investigation, that employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts, and that the company had not complied with the requirement in federal securities laws to preserve those records. The corporate culture, so to say, was to ignore this behavior. In fact, managing directors and other senior officials—who were responsible for implementing and ensuring compliance with company policies and procedures—had also used their personal devices to communicate about the firm’s securities business. With its renewed focus on the conduct of gatekeepers, DOJ viewed this behavior as sending a message to the lower ranks that such conduct was OK. JP Morgan was fined $125 million and required to hire a compliance consultant to review its electronic communications policies.
As a corporation’s leaders and counsel set out to design, or revamp, the company’s compliance program, they should consider three questions that DOJ has outlined to guide prosecutors in evaluating a compliance program: 1) is the compliance program well designed? 2) is the program being applied earnestly and in good faith? 3) does the compliance program actually work?
1) As to the design of a compliance program, DOJ is particularly focused on whether the program is comprehensive and tailored to the company’s business. DOJ has been known to perform its own risk assessment of a company, and then to evaluate whether the compliance program addresses each of the identified risk areas. For instance, where a company operates across different countries, DOJ will likely check whether training is offered in multiple languages and whether cross-border reporting protocols are in place.
A program’s design must also facilitate meaningful gatekeeper involvement. Gatekeepers must be properly trained on the mechanics of the program, know the specific industry risks, and have realistic avenues to address concerns and adapt the program as the business changes or grows.
And the avenues of communication should work both ways. A hallmark of most successful compliance programs is a confidential reporting and investigation process. In this way, employees can report suspected misconduct without fear of reproach and know that qualified personnel will investigate their reports.
2) As to implementation, one emphasis of DOJ is whether “the program provide[s] for a staff sufficient to audit, document, analyze, and utilize the results of the company’s compliance efforts?” This means, not only that the program must be sufficiently staffed and funded, but also that those who administer the program have sufficient autonomy to do their jobs without the C suite exerting total control over compliance processes.
Company culture is another government focus. Corporate leaders set the tone through their example. They also encourage the desired culture through incentives for compliance and disincentives for bad actions. There should be a standardized policy in place that rewards those who promote compliance efforts and punishes those who violate the company’s program or the law.
3) As to efficacy, the measure is not necessarily whether a program prevents a crime, but whether the program successfully discovered the crime, and whether the program has been modified and updated to prevent similar acts in the future. And of course, the company must appropriately deal with any bad actor involved in the misconduct.
DOJ has issued a strong warning to white collar criminals. In fact, Attorney General Garland “expect[s] that [DOJ’s] enforcement activity will only accelerate as we come out of the pandemic.” As he put it, DOJ’s “interest in prosecuting corporate crime” is “waxing.” The white collar defense bar is on notice and must stay vigilant. The skills required of us are waxing, too.