As we recently discussed, the Department of Justice released new guidance covering a multitude of topics, including employees’ use of personal electronic devices and third-party messaging platforms, financial compensation incentives and clawbacks. At the American Bar Association’s 38th Annual National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco announced the launch of the Department of Justice’s (“DOJ”) Compensation incentives and Clawbacks Pilot Program providing further incentives for corporate compliance.
We recently reviewed the DOJ’s Revised Corporate Enforcement Policy where Assistant Attorney General for the Criminal Division Kenneth A. Polite, Jr. announced significant revisions to DOJ’s corporate criminal enforcement policy (“CEP”) including additional incentives to companies for voluntary self-disclosures, cooperation, and remediation. On March 2, 2023, Deputy Attorney General Monaco announced that the Pilot Program, which will be in effect for three years beginning March 15, 2023, is designed to reward corporations by giving compliance professionals another tool to incentivize ethical behavior and punish misconduct.
There are two components to the Pilot Program: (1) compliance enhancements; and (2) deferred fine reduction.
A March 3, 2023 DOJ memorandum on the Pilot Program notes that “when entering into criminal resolutions, companies will be required to implement compliance-related criteria in their compensation and bonus system and to report to the [DOJ’s Criminal] Division about such implementation during the term of such resolutions.” Under the compliance enhancement component, the company must annually report its implementation of criteria such as:
- a prohibition on bonuses for employees who do not satisfy compliance performance requirements;
- disciplinary measures for employees who violate applicable law and others who both:
a. had supervisory authority over the employee(s) or business area engaged in the misconduct; and
b. knew of, or were willfully blind to, the misconduct; and
- incentives for employees who demonstrate full commitment to compliance processes.
Criminal Division prosecutors are to use their discretion in selecting the requirements for implementation based on the facts and circumstances of the case.
With respect to the deferred fine reduction component, DOJ acknowledges there may be cases where a criminal resolution is warranted, but the company should receive credit for its efforts to recoup payments from employees who may have been involved in the conduct at issue. If so, and the company “has implemented a program to recoup compensation from employees who engaged in wrongdoing in connection with the conduct under investigation, or others” and “has in good faith initiated the process to recoup such compensation before the time of resolution, an additional fine reduction may be warranted.” In these circumstances, Criminal Division prosecutors must provide, in addition to any other reduction available, a reduction of the fine by 100% of any such compensation that is recouped during the period of the resolution.
It must be noted that any fine reduction under the Pilot Program does not affect any applicable restitution, forfeiture, disgorgement, or other agreed-upon payment by the company.
The Pilot Program further reiterates the importance of an effective compliance program to prevent government investigations, fines, and to also boost employee morale for being good actors. The Pilot Program also emphasizes the financial benefits that an effective compliance program can bring, providing additional tools to help drive compliance throughout the organization. Companies should review and augment their compliance programs to implement intercompany benefits of committing to the compliance processes and mechanisms to recoup compensation from bad actors.