Gaining situational awareness at the first sign of potential legal trouble can improve the likelihood of getting cooperation credit from prosecutors even given the Department of Justice's stepped-up corporate enforcement posture, says an attorney who works with general counsel.
General counsel over the past year have had to navigate a more rigid environment when it comes to getting cooperation credit. In a speech she gave last year to the White Collar Crime institute of the American Bar Association, Deputy Attorney General Lisa Monaco laid out three principles underlying the DOJ’s new enforcement approach:
- Companies under investigation are expected to give the agency all of the names of employees who are potentially involved in a matter, even if they’re not a high-level executive and only indirectly involved.
- Prosecutors will consider the full breadth of past enforcement actions against the company, even if past actions were settled and involve an unrelated enforcement area.
- Prosecutors can require companies to hire third-party monitors for compliance matters that, previously, they might not have had to.
"I think the whole cooperation dynamic has become much more difficult for companies under investigation," says Robert McBride, a former federal prosecutor and partner-in-charge of the Northern Kentucky office of Taft, a law firm with 675 lawyers in 11 offices across the United States.
How consistently DOJ will be able to get prosecutors in U.S. Attorney’s Offices across the country to enforce the new principles uniformly can’t be known, but U.S. Attorney General Merrick Garland made it clear corporate crime is front and center for the agency.
"It will not surprise you to hear that the prosecution of corporate crime is a Justice Department priority," Garland told the ABA’s White Collar Crime Institute in March. "To fail to aggressively prosecute corporate crime leads citizens to doubt that their government adheres to this principle. The Justice Department does not intend to fail."
Extending an olive branch
Corporate cooperation credit is a vague concept. Depending on the facts and circumstances of the case and how the company under investigation has responded to information requests, prosecutors will typically hold out an olive branch when it comes to recommending settlement terms and, in the case of conviction, sentences.
The new posture suggests Main Justice wants to more tightly control what constitutes credit. That approach has the virtue of clarity but it gives general counsel, and the attorneys working with them, less tactical flexibility, especially when it comes to deciding who should, and who shouldn’t, be identified to the DOJ as someone who knows something about the issue under review.
"The more people you have involved in the investigation internally, the more difficult it becomes to maintain confidentiality," says McBride. "A properly executed internal investigation helps to preserve the attorney-client privilege and avoid breaches of the privilege, intentional or unintentional."
That’s especially the case if prosecutors expect a company to identify people who are outside of the executive suite or otherwise not significant management people.
"I think there’s a concern at Main Justice that you have organizations that will walk right up to the edge of cooperation and tell the DOJ these are all the people who we think are involved, but not much more. I believe the Deputy Attorney General is saying that it’s the prosecutor’s job to decide which charges to bring against whom. Something less may inadvertently undermine the prosecutorial discretion."
From the general counsel perspective, prosecutors reaching further down the reporting chain can impede tactical flexibility.
A similar concern arises with the tougher posture on past enforcement issues. Even if the company settled without admitting or denying any culpability on a matter unrelated to the investigation, prosecutors can take that into account when deciding how much to give credit to the company.
"Now the DAG is saying, 'How many times have we come knocking on your door to see if you’re a bad actor, and you’ve entered into a non-prosecution agreement with us or some sort of settlement with the SEC?'" McBride says.
That means, potentially, a company that has had past run-ins with any enforcement agency, like the Securities and Exchange Commission, could cooperate with prosecutors and still not get credit if prosecutors feel the company has exhibited too much of a pattern of problematic behavior.
"That’s pretty new," he says. "That’s not something that’s been done in the past as formally as that. I think that’s powerful."
Prosecutors’ quicker use of third-party monitors also raises issues because of the monitors’ de facto role as enforcers. "They essentially lay some sort of controls on companies," he says. On top of that, they’re expensive.
DOJ’s traditional enforcement sweet spot is companies of less than 50 employees and those of between 500 and 1,000 employees. Although any company of any size can be hit by an enforcement action, general counsel in companies of these sizes in particular can at least increase the likelihood of getting cooperation credit by approaching DOJ proactively if they suspect there might be an internal problem that could become the subject of an investigation.
"If I were general counsel [and caught wind of a possible bad actor], and I received financial information that may suggest fraud of some kind, the first thing I would do is call my lawyer and say, 'We have this going on. I want you to look at what’s happening here and if we really have a problem, let’s take a closer look at it,'" he says. "If an internal investigation reveals criminal conduct, it may be that the best way to begin corporate cooperation is to notify DOJ voluntarily. However, every circumstance is different, and even self-reporting is not a guarantee of earning corporate cooperation."