DOJ reforms self-disclosure approach with new corporate enforcement plan
The DOJ has altered its corporate enforcement policy to simplify investigations and amplify the benefits firms can receive by self-reporting, fully cooperating, and effectively remediating misconduct.
Written by a human
In brief:
- The DOJ has announced a revision to its CEP to reduce the regulatory burden and clarify benefits for firms that self-report
- As part of the DOJ’s new plan, it will now offer a clear path to declination should firms choose to voluntarily self-disclose, cooperate, and remediate misconduct
- More than ever, this new plan reinforces the need to detect potential misconduct and self-report before the regulator does
The latest on the list of considerable regulatory changes is the Department of Justice’s (DOJ) new approach to white-collar enforcement, particularly in relation to self-disclosure. In a newly revised plan, the regulator has outlined the ways that firms can avoid stringent enforcement action as it relates to financial misconduct.
“Turning a new page” on self-disclosure
In a speech released on May 12, Matthew Galeotti, head of the DOJ’s criminal division, laid out the Department’s new plan for self-disclosure. To provide additional transparency and clarity to compliance professionals, the Department amended its Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) to further incentivize firms to come forward.
Now, firms that take all steps necessary to cooperate and self-disclose will receive a declination, not only a presumption of a declination. The revised CEP presents several reward options for self-disclosure depending on the circumstances of the case:
- Firms that meet the DOJ’s core requirements, which include voluntarily self-disclosure to the Criminal Division, full cooperation, timely remediation, and no aggravating circumstances, will not be required to enter a criminal resolution and will receive a CEP declination
- Firms that are willing to meet all the above requirements but may be concerned due to aggravating circumstances may still be eligible for a CEP declination based on the severity of aggravating circumstances, as well as their cooperation and remediation responses
- Firms that did not self-disclose quickly enough – or after the Department’s discovery of misconduct – may still be eligible to receive benefits, including a non-prosecution agreement with a term of fewer than three years, 75% reduction of criminal fines, and no required monitor
The DOJ noted that this shift would resolve the previous lengthy and burdensome investigation process that had firms feeling like they must “accept the fate the Department has ultimately decided.” Instead, this change is meant to encourage compliance teams to collaborate with the regulator in addressing individual misconduct.
In explaining the core message firms should take away from this revised plan, Galeotti stated:
“Self-disclosure is key to receiving the most generous benefits the Criminal Division can offer. Why? Because coming forward and coming clean lets the Department devote its resources to investigating and prosecuting individual wrongdoers and the most egregious criminal schemes.”
The Department also made amendments to its monitor selection policy, stating that unrestrained monitors can be a “burden on businesses that are frequently making self-directed improvements and investing significant amounts in their own compliance programs to solve problems internally and proactively.” Following these revisions, firms will now see fewer monitors going forward.
Now, prosecutors must consider a variety of factors to impose a monitor, including the nature and seriousness of the conduct and risk, the availability of other effective independent government oversight, the efficacy of the firm’s compliance program, and the maturity of the firm’s controls.
Heavier on the carrot, stingier on the stick
This marks a notable shift in the regulator’s approach to self-disclosure and materially alters the incentives and expectations for firms tackling misconduct. The Department called on the important role that compliance teams play in defending against criminal actors, stating that its goal is to “prosecute criminals, not law-abiding businesses.”
Previously, firms may have resorted to self-reporting as a last-ditch effort in fear of harsh repercussions and lacking benefits. With regulators like the DOJ and Commodity Futures Trading Commission offering a clear path to declination for firms that take a proactive approach to misconduct monitoring and flagging, will we see a steep increase in self-reporting rates?
Across governing agencies, there’s been a move to “reduce the regulatory burden” in favor of innovation and efficiency. In the past several months, the Securities and Exchange Commission (SEC) pivoted its stance on AI use and crypto following administrative changes. Considering previously cautious views on emerging tech, this marks a substantial shift for the SEC.
There have also been changes across the pond, with the Financial Conduct Authority (FCA) taking an encouraging view on AI innovation, as well as rejigging its regulatory oversight with a new five-year strategy to encourage competition and support growth.
Early firm gets the declination worm
The DOJ’s strategy to illuminate benefits for self-disclosure makes one thing abundantly clear: firms that monitor and identify potential instances of misconduct will stay in the regulators’ good books and remain ahead.
On the other hand, the Department emphasized that the Criminal Division would hold firms that instead enable criminals accountable. Previous enforcements have revealed leadership’s knowledge of misbehavior with no attempts to take action, such as in the case of TD Bank’s anti-money laundering failings. To avoid harsh repercussions, it’s imperative that firms are firm in ensuring that all leadership has gotten the message on maintaining compliance.
A lack of incentivization and heavy strike back might have kept firms from coming forward before, but the DOJ’s new strategy presents a commercial advantage to those who maintain full oversight of business communications and identify instances of wrongdoing before the regulator:
“Never before have the benefits of self-reporting and cooperating been so clear…You are the eyes and the ears of your companies. You have the opportunity to see something, report something, and make sure your company can work with the Department… and receive all the benefits we have to offer.”
As the DOJ pushes for self-disclosure to ensure market integrity and efficiency, stay on top of the game by monitoring and identifying potential misconduct before the regulator does.
