February 22, 2022 Articles

FTC and DOJ Signal Increased Criminal Enforcement of Corporations and Their Employees

There are a few proactive steps for corporations and their counsel to prepare for looming government investigations.

By Allison Reimann, Sean Bosack, and Christie Carrino

In September 2015, the U.S. Department of Justice’s (DOJ’s) release of the Yates Memorandum sent shock waves through the white-collar defense and corporate compliance legal communities. That memo announced several measures designed to deter corporate misconduct by holding individual actors accountable. Most notably, it raised the bar for companies to receive cooperation credit in civil and criminal matters by requiring corporations to provide all relevant facts about all individuals involved in corporate misconduct to be eligible for any cooperation credit. This requirement paralleled longstanding DOJ Antitrust Division practice under its signature Leniency Policy.

Under the Trump administration, DOJ relaxed some of these requirements, making the standards surrounding cooperation credit and individual accountability more business friendly. Thus, during the first year of the Biden administration, there was speculation as to what DOJ would do to make good on Biden’s promises to enhance enforcement against corporate abuses generally, and more particularly against anti-competitive conduct harming consumers. Recent pronouncements from DOJ and the FTC strongly suggest a return to more rigorous enforcement standards against corporations with an increased emphasis on individuals.

Specifically, on October 28, 2021, Deputy Attorney General Lisa Monaco gave remarks, and shortly thereafter issued a memorandum (Monaco Memorandum), announcing a return to the more rigid policies embodied in the Yates Memorandum, including reinstatement of the requirement that corporations disclose all facts about all individuals involved in alleged misconduct to be eligible for cooperation credit. Moreover, the Monaco Memorandum instructs prosecutors to consider a corporation’s entire history of civil and criminal misconduct when considering charges and resolution of cases, and foreshadows the increased use of monitorships to enforce settlement agreements and deter future misconduct.

Less than a month later, on Nov. 18, 2021, the FTC issued a policy statement and press release chronicling its robust history of referring matters to criminal authorities for prosecution when it uncovers conduct that may constitute a violation of criminal laws. The FTC has vowed to ensure that its enforcers identify criminal law violations, particularly by corporate actors, and refer them to the appropriate criminal enforcement agencies.

This article addresses the nuts and bolts of the recent DOJ and FTC policy pronouncements. It also identifies proactive steps for corporations and their counsel to prepare for looming government investigations, both to avoid liability for corporations and their employees and mitigate consequences when rogue employees circumvent otherwise robust compliance efforts.

DOJ Announces Return to Yates Memorandum Requirements

In September 2015, the DOJ, through the Yates Memorandum, announced guidelines aimed at more effectively pursuing individuals responsible for corporate wrongdoing. The Yates Memorandum identified key steps, focused on individuals, that prosecutors should take in all investigations of potential corporate violations, including:

  • To qualify for cooperation credit, corporations must provide the DOJ with all relevant facts regarding all individuals involved in the corporate misconduct, regardless of their level of seniority.
  • Both criminal and civil DOJ investigations should focus on individuals from the very beginning of an investigation.
  • Prosecutors and their civil attorney counterparts should be in routine communication and refer individuals for further civil or criminal investigation as appropriate.
  • DOJ should agree to a corporate resolution that provides immunity to identified individuals only in extraordinary circumstances or pursuant to approved departmental policy.
  • DOJ must have a clear plan for resolving investigations of individuals before it resolves the case against a corporation.

These principles applied broadly to cases involving white collar crime, including antitrust matters. However, the Antitrust Division already had a long history of pursuing individuals in its investigations and prosecutions. As a senior DOJ Antitrust Division official explained in a 2016 speech, “[t]he division has long touted prison time for individuals as the single most effective deterrent to the ‘temptation to cheat the system and profit from collusion.’” Indeed, at the time of the Yates Memorandum, the Antitrust Division prosecuted almost three times as many individuals as corporations, including executives at the highest levels.

Notably, the Yates Memorandum left undisturbed certain, arguably conflicting aspects of the Antitrust Division’s longstanding Leniency Policy which provides immunity to a company and certain qualifying employees that first report an antitrust violation to the Antitrust Division. Although the Yates Memorandum provides that DOJ generally should not enter into corporate resolutions that dismiss charges against or immunize individuals, the Leniency Policy protects individual employees, provided they admit their involvement and cooperate against their co-conspirators—unless those employees are expressly “carved out” and therefore may be subject to prosecution. The Yates Memorandum permitted this practice to continue, presumably because cooperation of individuals is often essential to proving antitrust conspiracies. However, the Yates Memorandum also raised questions about whether the Antitrust Division would carve out more individuals going forward, or if, alternatively, the Antitrust Division would be less likely to carve individuals out due to the pressure to prosecute individuals and the desire to prioritize the strongest cases.

Despite the DOJ’s long track record prosecuting individuals, the Antitrust Division committed to undertake a more comprehensive investigation of individuals in line with the Yates Memorandum’s directive. This included adoption of new internal procedures to ensure that potentially culpable individuals are identified as early as possible, a commitment to bring cases against individuals as quickly as evidentiary sufficiency permitted, and a plan to undertake a more comprehensive review of companies’ organizational structures to identify all senior executives potentially involved in the criminal conduct.

During the Trump administration, however, the DOJ rolled back the portions of the Yates Memorandum dealing with cooperation credit. For example, the DOJ softened its stance such that corporations would no longer need to provide all relevant facts about all people, but instead would be required only to provide all facts regarding individuals “substantially involved in or responsible for” the alleged misconduct. Moreover, during the Trump years, the DOJ filed markedly lower numbers of antitrust criminal charges against both companies and individuals.

The Biden administration now has recommitted to the principles in the Yates Memorandum while also promising to ramp up enforcement against repeat corporate offenders. In an October 2021 speech, Deputy Attorney General Lisa Monaco made clear that the DOJ’s “first priority in corporate criminal matters [is] to prosecute the individuals who commit and profit from corporate malfeasance.” However, where appropriate the DOJ “will not hesitate to hold companies accountable” as well. Deputy Attorney General Monaco announced four actions that the DOJ would take as “just a first step” to ramp up enforcement of corporate wrongdoing:

  1. Reinstating the requirement that companies provide “all non-privileged information about individuals involved in or responsible for the misconduct at issue . . . regardless of their position, status or seniority” to receive cooperation credit.
  2. Requiring that prosecutors evaluate “all prior misconduct” of any kind, whether civil, criminal or regulatory, when making decisions about resolution of a criminal case.
  3. Encouraging prosecutors to require independent monitors whenever necessary to ensure that the company adheres to its compliance and disclosure obligations.
  4. Committing to hold companies accountable for any breach of non-prosecution agreements (NPAs) or deferred prosecution agreements (DPAs) where necessary and appropriate.

While the application of these guidelines remains to be seen, including whether they will impact the Antitrust Division’s practices under the Leniency Program, these recent remarks signal a clear departure from the more relaxed corporate enforcement under the Trump administration.

FTC Announces Expansion of Criminal Referral Program

The DOJ is not the only federal enforcer focused on criminal enforcement of corporations and their employees. Just days after the issuance of the Monaco Memorandum, the FTC voted to expand its criminal referral program. While the FTC has only civil enforcement authority, it has long collaborated with criminal enforcers when FTC investigations uncover possible criminal conduct. The agency’s new policy statement outlines several ways the agency plans to increase cooperation between FTC and federal, state, local and international criminal enforcers, including:

  • Regular public reporting on the FTC’s criminal referral efforts.
  • Development of guidelines for identifying criminal violations by agency staff and referring such matters to the proper criminal authorities.
  • Regular meetings with federal, state and local criminal authorities to facilitate coordination and develop best practices to enhance coordination.

The recent policy statement highlights several of the FTC’s past successes in uncovering criminal conduct during antitrust investigations, including during merger investigations and civil investigations of potentially anti-competitive conduct. For example, in FTC v. Bristol Myers Squibb Company, the FTC uncovered conflicting sworn statements in an investigation relating to a “pay-for-delay” agreement, which ultimately resulted in guilty pleas by the company and one of its executives to perjury and false statements charges. This illustrates how an investigation of an alleged civil violation judged by the rule of reason can morph into a criminal enforcement matter. In another recent high-profile matter, that FTC settled civil charges relating to alleged collusion concerning staffing company wages, and the DOJ thereafter filed its first wage-fixing indictments against two of the involved individuals.

Notably, the FTC explained that the expanded criminal referral program is “part of [the agency’s] work to stop and deter corporate crime” and that the agency intends to identify and refer criminal law violations by major corporations and their executives. FTC Chair Lina Khan emphasized this point, explaining that she is “especially interested in the Commission’s efforts to coordinate with criminal authorities around wrongdoing by major corporations,” who “are more likely than smaller firms to be repeat offenders.” She also notes that individual criminal liability is critical for deterrence purposes, because corporations may simply treat even seemingly high fines as the cost of doing business. Finally, she emphasizes that it is important that “all evidence of criminal activity be appropriately referred, including instances where corporations have lied to or hid material information from FTC staff.”

The real-world impact of the enhancements to the FTC’s criminal referral are not yet known. However, companies should assume that the FTC will not hesitate to refer criminal conduct to authorities—particularly by major corporations—whether or not the alleged criminality involves substantive antitrust or consumer protection offenses.

Practical Considerations

The recent DOJ and FTC announcements send a clear signal that corporations as well as individual executives and employees are in enforcers’ crosshairs and that the Biden administration will not hesitate to hold all culpable parties accountable for corporate misconduct. Companies and their antitrust counsel should take to heart the following in the present enforcement environment:

  • Now is the time to review and revise antitrust compliance policies and train employees on the applicable law, the risks of individual criminal and civil liability, and how to report violations. Further, a robust and effective compliance policy will help to identify and avoid problems only to the extent it is enforced.
  • Expect the use of monitors to increase, including potentially in antitrust plea agreements and DPAs, though evidence of robust, strongly enforced compliance policies reduce the chance that DOJ will impose a monitor.
  • Be mindful that evidence of criminal conduct that turns up during an FTC merger review or a civil antitrust investigation may result in indictments of the company and/or individuals. And the scope of potential criminal charges is not limited to substantive antitrust offenses—the FTC intends to refer all types of criminal conduct, such as false statements, to appropriate authorities. It is imperative that companies exercise due diligence to ensure that disclosures are complete, accurate and not misleading.
  • The Monaco Memorandum’s reinstatement of the Yates Memorandum should motivate companies to act swiftly when they learn about potential misconduct. Timely identification of those responsible through a robust internal investigation is the first step to positioning the company for cooperation credit under the Monaco Memorandum given the requirements to tell all facts and name all names.
  • Companies wishing to pursue amnesty should notify DOJ promptly after uncovering evidence of even a potential criminal antitrust violation, even while an internal investigation proceeds, because only the first company to report is eligible for leniency. Additionally, greater leniency protections are available to companies that report a violation before the DOJ learns of the conduct from other sources, such as the FTC—which has particular salience considering the FTC’s recent vote to expand its criminal referral program and therefore may be more likely to notify DOJ of potential antitrust crimes it uncovers. Moreover, because the Leniency Program generally covers all current directors, officers and employees who admit their involvement and fully cooperate, prompt action is even more critical in the present climate where prosecutions of individuals is a priority.
  • While companies not eligible for leniency often have opted to cooperate with the Antitrust Division to obtain plea agreements or DPAs, they should keep in mind that the Monaco Memorandum’s directive to prosecutors to consider the full range of prior misconduct could result in the unavailability of non-plea options or more stringent terms. Furthermore, the Monaco Memorandum casts doubt on the future availability of DPAs and NPAs for companies that have received the benefits of such pretrial diversion in the past.
  • Companies should carefully review any DPAs, NPAs or monitorship requirements, particularly for companies they may have acquired, and ensure that such requirements are being vigilantly enforced.
  • The requirement to tell all, and name all names, coupled with an increased emphasis on prosecution of individuals, imposes challenges for in-house counsel determining the right time to engage counsel for individuals with potential criminal exposure. Companies must carefully consider whether to engage individual counsel only after an internal investigation is complete and the company has sufficient information to share with the government in exchange for cooperation credit, or sooner, which may be perceived to be fairer to the individual, but potentially negatively impact the company’s investigation.

Considering the Biden administration’s focus on anti-competitive conduct in labor markets, the recent agency announcements make it more important than ever for companies to evaluate non-solicitation or other agreements impacting labor markets to determine if they have legitimate pro-competitive justifications or are simply naked restraints on competition for labor. The FTC appears particularly likely to refer such agreements to DOJ for prosecution if discovered during other investigations.

Allison W. Reimann is a shareholder with Godfrey & Kahn S.C. in Madison, Wisconsin. Sean Bosack is a shareholder and Christie Carrino is an associate with the firm's Milwaukee, Wisconsin, office.

Entity:
Topic:

Copyright © 2022, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Litigation Section, this committee, or the employer(s) of the author(s).