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Changes in the US DoJ’s corporate enforcement policy: implications for Indian companies

Monday 25 April 2022

Avik Biswas
IndusLaw, Bangalore
avik.biswas@induslaw.com

Rithika Reddy
IndusLaw, Bangalore
rithika.reddy@induslaw.com

Arunima Kumar
IndusLaw, New Delhi
​​​​​​​arunima.kumar@induslaw.com

Introduction

On 28 October 2021, United States Deputy Attorney General Lisa Monaco announced certain significant changes in the Department of Justice’s (DoJ) policy to pursue corporate crimes.[1] The announcement became known as the Memorandum on Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies (Monaco Memo). It heralded various policy changes including the introduction of the Corporate Crime Advisory Group. These policy changes primarily revolve around increased individual accountability, stricter requirements to receive cooperation credit and enhanced emphasis on corporate culture of compliance. To that end, this article discusses the potential impact of the Monaco Memo on Indian companies covered by the 1977 Foreign Corrupt Practices Act (FCPA).

Key policy changes to pursue corporate crimes

Enhancement of prerequisites to obtain corporate cooperation credit

The most significant of the changes announced was the DoJ’s reinstatement of previous guidance under the Memorandum from former US Deputy Attorney General Sally Quillian Yates, titled ‘Individual Accountability for Corporate Wrongdoing’ (Yates Memo).[2] Published in 2015, the Yates Memo stressed that in order to qualify for any cooperation credit,[3] companies must provide all non-privileged information about all individuals involved in the misconduct at issue, regardless of their position, status or seniority. As per the Yates Memo, the failure of a company to provide the requisite facts could result in its cooperation not being considered a mitigating factor. Despite renewed emphasis on individual accountability, the Deputy Attorney General however clarified that the DoJ would not hesitate to hold companies accountable, where appropriate.

The Deputy Attorney General’s speech effectively means that Section 9-28.700 of the Justice Manual (‘The Value of Corporation’) stands modified, which in turn has significant repercussions for Section 9-47.120 dealing with FCPA Corporate Enforcement Policy. Consequently, Indian companies falling under the scope of the FCPA will have to revert to disclosing all individuals involved in the alleged misconduct, without deciding on the individual’s role in the misconduct themselves. This could alter the way in which Indian companies conduct internal investigations, with expectations of such investigations to be more robust and rigorous in order to ascertain the involvement of all individuals involved in the misconduct, whether inside or outside the company. Increased involvement of external counsels and forensic consultants as part of the process also cannot be ruled out. Indian companies would also have to rely extensively on the cooperation of its own employees although employee cooperation is never guaranteed in an internal investigation.

Broadening the scope of ‘prior misconduct’ when evaluating corporate resolutions

Chapter 9-28.000 of the Justice Manual contains ‘The Principles of Federal Prosecution of Business Organizations’ which enumerates several factors for the DoJ to consider while evaluating appropriate corporate resolutions.[4] Specifically, Section 9-28.600 deals with a company’s history of misconduct which states that ‘the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it’ may be considered by prosecutors while determining whether to bring criminal charges. Pursuant to the Monaco Memo, it clear that the DoJ will evaluate a company’s prior misconduct even if it is unrelated to the present issue being investigated, provided it has been the subject of criminal, civil or regulatory enforcement by domestic or foreign regulators. The Deputy Attorney General indicated that the rationale behind this policy change is to harmonise the way in which corporate and individual criminal histories are treated. Additionally, corporate recidivism, even if it is across a broad spectrum of past misconduct, speaks directly to a company’s overall commitment to compliance programmes and discouraging criminal activity.

This shift could have ramifications for Indian companies, as broadening the scope of ‘prior misconduct’ exposes them to a greater possibility of stricter treatment by DoJ authorities. While the focus on individual accountability has increased, the Monaco Memo makes it clear that individuals alone are not the sole problem as corporations often repeat crimes due to their inherent culture of malfeasance. To this end, a company that has been subject to other civil, criminal or regulatory actions, cannot now claim absence of aggravating factors merely because they have not been subject to an FCPA enforcement in the past. This new approach could also affect large Indian multinational corporations, particularly ones operating in highly regulated industries as they face heightened scrutiny from multiple regulators from multiple jurisdictions. Additionally, this could pose a problem for Indian companies with longer life spans, who may have faced regulatory issues in the past.

Resurgence of independent corporate monitors as form of corporate resolution

In corporate criminal resolutions, a company’s sentence or negotiated resolutions such as deferred prosecution agreements (DPA) or non-prosecution agreements (NPA) may require the appointment of an independent corporate monitor who is responsible for assessing and monitoring the company’s adherence to the corporate resolution. The first guidance on selection and use of monitors was issued in 2008 (Morford Memo),[5] which advised prosecutors to consider the potential benefits of a monitor as well as its cost and its impact on the operations of a corporation while making a decision on imposition of monitorship. It further cautioned that monitors should never be used ‘to further punitive goals.’ In 2018, this guidance was significantly expanded by another memorandum (Benczkowski Memo),[6] which stressed that monitors should only be favoured ‘where there is a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burden.’ It further directed that a monitor will not likely be necessary where a corporation’s compliance programme and controls are demonstrated to be effective and appropriately resourced at the time of resolution. The Monaco Memo has now announced that this previous guidance suggesting that monitorship is out of favour, or used only in exceptional cases, is being rescinded and that the DoJ is free to impose independent monitors wherever appropriate in order to satisfy the prosecutors that a company is living up to its compliance and disclosure obligations under the DPA or NPA.

From now on, Indian companies should be aware that there will be no default presumption against the appointment of independent monitors if they run foul of FCPA violations. It is no longer the DoJ’s preferable stance to use them sparingly or only in egregious circumstances, a trend that has been apparent since 2018 after the Benczkowski Memo was issued. For instance, 2020 was a record year for the number of FCPA enforcements and yet there was not a single corporate monitorship imposed on any defaulter company, as opposed to approximately dozen cases of monitorship imposed in 2018.[7] Corporate India should be weary of the costs involved in being subjected to a monitorship. In 2014, Apple sought removal of a court-appointed antitrust monitor for excessive billing (US$1,100 per hour) and for overstepping the terms of monitorship.[8] Costs are not the only factor to consider; monitorships are often highly intrusive in nature as a company’s adherence to any compliance framework requires an in-depth evaluation of the company’s compliance culture. Consequently, Indian companies need to bear in mind that monitorships require time, personnel, and financial resources to cooperate with the monitor’s assessment.

Other potential areas of change

In addition to these specific policy changes, the Deputy Attorney General announced that the DoJ would consider if DPAs and NPAs are appropriate for recidivist companies as subsequent violations tend to defeat the very purpose of these resolutions. It is evident that the DoJ wants to ensure that continued fines and resolutions do not simply become the cost of doing business. Furthermore, the Deputy Attorney General cautioned that there would be ‘serious consequences’ for companies which break the terms of the DPA or NPA.

In order to bring these potential changes into operation, the Deputy Attorney General announced the formation of the Corporate Crime Advisory Group which would include representatives from every part of the department involved in corporate criminal enforcement. This group would be responsible for deliberating on a variety of issues including pre-trial diversions in case of corporate recidivists.

How should Indian companies view these changes?

The Deputy Attorney General’s speech, read with the Monaco Memo, indicates a probable increase in the number of corporate actions as well as additional scrutiny for companies. This should enhance every Indian company’s commitment to undertaking compliance programmes which meet the DoJ’s expectations. A corporate culture based on compliance would give Indian companies an advantage in negotiating a resolution with the DoJ in the event of a prosecution. Additionally, Indian companies could also consider taking the following steps to address these changes:

  • Now that companies are required to provide information regarding all individuals involved in the misconduct, Indian companies should consider making their internal investigations even more robust and rigorous, with the probable increased involvement of independent counsels and forensic consultants.
  • Companies should revise their internal investigations policy, code of conduct and whistleblower policy and insert specific enforceable provisions dealing with employee cooperation.
  • Companies should implement comprehensive fraud risk assessments across all their business verticals to identify the gaps, past instances of misconduct and assess the likelihood and interplay of potential risks across their business functions.
  • Companies should focus on taking measures to strengthen their overall compliance programme to avoid imposition of monitorships and other similar resolutions by the DoJ, when faced with a prosecution. The fact that imposition of corporate monitorships is no longer out of favour seems to be a rational basis for companies to make the required changes to avoid hefty costs and long-term operational impact.
 

Notes

[1] Lisa O Monaco, Deputy Attorney General, US DoJ, Remarks prepared for the ABA’s 36th National Institute on White Collar Crime in Washington, DC (28 Oct 2021), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute accessed 18 April 2022.

[2] US DoJ, ‘Individual Accountability for Corporate Wrongdoing’ (9 Sep 2015), https://www.justice.gov/archives/dag/file/769036/download accessed 18 April 2022.

[3] ‘The Value of Cooperation’ in Chapter 9-28.700 of the Justice Manual states that ‘Cooperation is a mitigating factor, by which a corporation – just like any other subject of a criminal investigation – can gain credit in a case that otherwise is appropriate for indictment and prosecution’, https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations#9-28.700 accessed 18 April 2022.

[4] ‘The Principles of Federal Prosecution of Business Organizations’, Chapter 9-28.000 of the Justice Manual, https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations accessed 18 April 2022.

[5] US DoJ, Memorandum, ‘Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations’ (7 Mar 2008), https://www.justice.gov/sites/default/files/dag/legacy/2008/03/20/morford-useofmonitorsmemo-03072008.pdf accessed 18 April 2022.

[6] US DoJ, Memorandum, Memorandum, ‘Selection of Monitors in Criminal Division Matters’ (11 Oct 2018), https://www.justice.gov/opa/speech/file/1100531/download accessed 18 April 2022.

[7] FCPA 2020 Year in Review, Jones Day, published in January 2021, https://www.jonesday.com/en/insights/2021/01/fcpa-2020-year-in-review accessed 18 April 2022.

[8] United States v Apple, Inc, 992 F Supp 2d 263 (SDNY 2014).