Cooperating May Credit Corporations with Leniency in Enforcement

Last September, US Deputy Attorney General Lisa Monaco issued a memorandum instructing the various departments in the Department of Justice to adopt a lenient enforcement policy toward corporations. The aim of this policy is to encourage cooperation with law enforcement agencies.

Monaco based her decision on the assumption that if corporations receive adequate protections by gaining credit for cooperation, they can become extremely important “allies” during enforcement efforts against lawbreaking individuals.

Following Monaco’s issuance of the memorandum, the Department of Justice introduced several policies, directives, and programs emphasizing a lenient approach toward corporations that voluntary self-disclose information about their offenses, cooperate with law enforcement agencies, and take steps to prevent future violations by implementing compliance programs. These measures aim to encourage self-reporting and cooperation by corporations, while also promoting the deterrence of future corporate misconduct.

In January and February 2023, the Criminal Division and the United States Attorney’s Office published policy documents stating that corporations will gain credit for voluntarily self-disclosure of information about offenses and cooperate fully with law enforcement agencies, and will not be subject to criminal proceedings (will qualify for a presumption of a declination to prosecute) or will be granted significant leniency if punitive measures are imposed.

Prior to these recent policy documents, committing an offense under aggravating circumstances would have made it impossible to avoid prosecution. However, today, even if a corporation commits such an offense, there is a chance it may not face prosecution if it voluntary self-discloses the offense immediately, cooperates extensively with law enforcement, and implements an effective compliance program.

The Deputy Attorney General’s September memorandum and the updated memorandum issued by the Criminal Division in March 2023 instruct prosecutors not to demand an external monitor as part of any deferred prosecution, non-prosecution, or plea agreement, if a corporation implements an effective compliance program and internal controls to prevent similar misconduct. This is a significant change in policy, as external monitors can be costly and intrusive, and corporations often resist their appointment

Compliance Programs to Prevent Law Enforcement Measures

These dramatic changes are exceedingly important for companies to consider, since diligence about designing, implementing, and enforcing compliance programs in the company may make all the difference between prosecution and non-prosecution. Effective compliance programs and internal controls can also lead to more lenient plea agreement terms for companies facing enforcement measures.

Therefore, the recommended conclusion is that companies be diligent in implementing compliance programs with the help of experts in relevant fields. It is preferable to do so as soon as possible. Law enforcement agencies in the United States (and Israel) are sending a clear message that they take a stern view of companies without effective enforcement programs and granting credit to corporations that implemented them. Not maintaining such programs is seen as an indication of a corporate culture that tolerates misconduct.

Communication Preservation

In March 2023, the US Criminal Division added provisions regarding companies’ obligation to preserve documentation, specifically concerning electronic communication. Therefore, providing relevant documents and information to investigators can improve a company’s chances of avoiding prosecution. Thus, it is crucial for companies to be forthcoming and cooperative during investigations. Conversely, law enforcement agencies will no longer condone evasive responses by companies that claim they cannot produce documentation of intra-organizational communications because third parties such as Google or Microsoft hold them. This behavior will negatively impact the decision-making process regarding whether or not to prosecute.

The US Criminal Division also launched a three-year pilot program under which corporations must implement an employee compensation program that incentivizes them to comply with the law. Corporations participating in the pilot will receive some leniency in law enforcement measures.

The Trend

An analysis of this trend shows that every Israeli company must internalize the importance of assimilating a high-quality culture of compliance, especially companies with operations in the United States. Such a culture is not a burden but a blessing, as it helps prevent corruption and other violations of the law. It can also help companies to avoid prosecution or obtain significant reductions in the intensity of law enforcement measures.

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Partner Hadar Israeli and associate Shir Rozenzweig are at your service for questions about the SEC’s compliance program and other white-collar issues.