New policy to provide transparency and clarity for corporate voluntary self-disclosures to US attorney’s offices

On February 22, 2023, Damian Williams, US Attorney for the Southern District of New York, and Breon Peace, US Attorney for the Eastern District of New York, announced a new policy that will give clarity and provide transparency to corporate entities navigating investigations into potential misconduct within their organizations (the Policy).^[1]

This announcement comes on the heels of Deputy General Lisa Monaco’s September 15, 2022 memorandum (Monaco Memo) that instructed each component of the Department of Justice (DOJ) that prosecutes corporate crime to review their policies on corporate voluntary self-disclosure (VSD). See our earlier alert for more information.

The new Policy published yesterday and effective immediately (i) standardizes how VSDs are defined and credited by US attorney’s offices (USAOs) nationwide; (ii) clarifies the requirements for companies to voluntarily self-disclose; and (ii) incentivizes companies to maintain effective compliance programs capable of identifying misconduct, expeditiously and voluntarily disclose and remediate misconduct, and cooperate fully with the government in corporate criminal investigations.^[2]

In this alert, we analyze the new, nationwide standards that companies must follow to receive the full benefits of a VSD and how these standards deviate from other policies issued by other Department components such as, for example, the Criminal Division Corporate Enforcement and VSD Policy (formerly, the Foreign Corrupt Practices Act, or FCPA, Corporate Enforcement Policy) and the Export Control and Sanctions Enforcement Policy for Business Organizations (National Security Division).

The policy

Policy requirements

The Policy outlines the new nationwide standards and benefits of a VSD.  Under the new policy, a company makes a VSD if it meets three requirements:

• It becomes aware of misconduct by employees or agents before that misconduct is publicly reported or otherwise known to the DOJ
• It discloses all relevant facts known to the company about the misconduct to a USAO and
• It discloses the information in a timely fashion prior to an imminent threat of disclosure or government investigation.

In order to receive the full benefits of the new VSD policy, a company must also cooperate fully with the USAO’s investigation and timely and appropriately remediate the conduct, including by agreeing to pay disgorgement or restitution.

The Policy notes that “regardless of whether a disclosure meets the standards of a VSD, prosecutors will continue to consider the corporation’s pre-indictment conduct, e.g., voluntary disclosure or cooperation, in determining whether to seek an indictment” and that “separate from this formal VSD Program, the Department continues to encourage corporations, as part of their compliance programs, to conduct internal investigations and to disclose the relevant facts to the appropriate authorities.”  The Policy also specifies that it does not apply in situations where the disclosure of a company’s misconduct was made by whistleblowers, including those who have informed the Department of fraud and other misconduct in qui tam actions.

Policy benefits

The Policy outlines new incentives for companies to self-disclose present or absent aggravating factors.

Assuming all requirements of the policy are met, and no aggravating factors exist, the USAO will not seek a guilty plea, may choose not to impose a criminal penalty, and in any event will not impose a criminal penalty that is greater than 50 percent below the low end of the US Sentencing Guidelines fine range when the company that voluntarily self-discloses both fully cooperates with the investigation and timely and appropriately remediate the criminal misconduct.

In the presence of aggravating factors, the USAO may still decline to prosecute, assuming the requirements of a VSD are met.^[3]  Where a guilty plea is warranted, the USAO:

• Will accord or recommend to a sentencing court, at least 50 percent and up to a 75-percent reduction off the low end of the US Sentencing Guidelines and
• Will not require appointment of a monitor if the company has, at the time of resolution, demonstrated that it has implemented and tested an effective compliance program.

The Policy further defines those instances where the imposition of an independent compliance monitor will not be mandated.  The Policy specifies that companies that can demonstrate, at the time of the resolution, that they implemented and tested an effective compliance program will not be placed under an independent compliance monitor, and that decisions about the need for a monitor will be made “on a case-by-case basis” and at “the sole discretion of the USAO.”

The Policy notes that, in evaluating whether the company has implemented and tested an effective compliance program, USAO shall (i) refer to the Monaco Memo and (ii) consider resources developed by DOJ’s Criminal Division to assist prosecutors in assessing the effectiveness of a company’s compliance program (such as the Evaluation of Corporate Compliance Programs issued by the Criminal Division and lasted updated in June 2020) or guidance provided by other Department components as to specialized areas of corporate compliance.

Application of the Policy with existing VSD policies

The new USAO VSD Policy provides that “[i]n cases where the company is being jointly prosecuted by a USAO and another Department office or component, or where the misconduct reported by the company falls within the scope of conduct covered by VSD policies administered by other Department offices or components, the USAO will coordinate with, or, if necessary, obtain approval from, the Department component responsible for the VSD policy specific to the reported misconduct when considering a potential resolution and before finalizing any resolution.

Consistent with relevant provisions of the Justice Manual and as allowable under alternate VSD policies, the USAO may choose to apply any provision of an alternate VSD policy in addition to, or in place of, any provision of this policy.” Thus, it seems that the USAO will work with offices within the Department of Justice, and the new Policy may be used in conjunction with those offices’ VSD policies or the other VSD policies may control. This creates another consideration for companies looking to disclose potential misconduct as the requirements and benefits of the USAO’s office may differ slightly from those policies set forth by various Department of Justice Offices.

Below is a chart that summarizes the new USAO policy requirements and benefits and how they compare to other applicable policies issued by different Department components. 

	Criminal Division Corporate Enforcement and VSD Policy (Formerly FCPA Corporate Enforcement Policy)	Export Control and Sanctions Enforcement Policy for Business Organizations	New Policy
Requirements of a VSD	Disclosure to the Criminal Division No preexisting obligation to disclose Disclosure occurs prior to an imminent threat of disclosure or government investigation Disclosure to the Criminal Division within a reasonably prompt time after becoming aware of the misconduct, with the burden on the company to show timeliness Disclosure of all relevant, non-privileged facts known, including all relevant facts and evidence about all individuals involved in or responsible for the misconduct at issue Full cooperation Timely remediation	Disclosure to CES prior to an imminent threat of disclosure or government investigation Disclosure within a reasonably prompt time after becoming aware of the offense with the burden on the company to demonstrate timeliness Disclosure of all relevant facts known to it at the time of the disclosure including as to any individuals substantially involved in or responsible for the misconduct at issue Full cooperation Timely remediation	Awareness of misconduct before that misconduct is publicly reported or otherwise known to the DOJ Disclosure of all relevant facts known to the company about the misconduct to a USAO Timely disclosure (prior to an imminent threat of disclosure or government investigation) Full cooperation Timely remediation
Benefits of a VSD	Presumption of a declination, absent aggravating factors, but will need to pay disgorgement/restitution Present aggravating factors, prosecutors may still determine a declination is appropriate, but if a criminal resolution is warranted, will recommend 50- to 75-percent reduction on the guidelines range, will likely not require a guilty plea, and will not require appointment of a monitor	Presumption that the company will receive a non-prosecution agreement and will not pay a fine, absent aggravating factors Present aggravating factors, Department may seek a Deferred prosecution Agreement or guilty plea but will recommend 50-percent discount in fine and will not require a monitor	Assuming no aggravating factors, presumption of no guilty plea. USAO may choose not to impose a criminal penalty, and will not impose a criminal penalty that is greater than 50-percent below the low end of the USSG fine range Present aggravating factors, USAO may still decline to prosecute Where a guilty plea is warranted, the USAO will recommend at least 5 percent and up to a 75-percent reduction off the low end of the USSG Monitor decisions on case-by-case basis

What this means

This new policy provides companies with a clearer picture of the benefits and requirements of a voluntary self-disclosure of potential misconduct to a US attorney’s office. It also ensures that a company will receive the same consideration for its disclosure regardless of the particular US attorney’s office to which they disclose the conduct. However, the policy also emphasizes the importance of and focus on voluntary self-disclosure by the government, and it explicitly provides that the presumption that the US attorney’s office will not seek a guilty plea only exists when a company voluntarily self-discloses regardless of the cooperation and remediation the company provides to the government.^[4]

Armed with this information, companies will be able to better weigh the costs and benefits of disclosing potential misconduct to the US attorney’s office. Companies will also be able to better predict the outcome of any disclosure they choose to make. While all of the risks and benefits of voluntary self-disclosure can never be entirely certain, this long-awaited policy is an important step toward transparency by the US attorney’s offices in ensuring that companies can make better-informed decisions regarding disclosure of potentially improper conduct.