Come clean, avoid legal wrath: DOJ expands corporate self-disclosure program

The Justice Department is putting down its stick and picking up a carrot to influence companies to voluntarily disclose financial crimes.

The Corporate Enforcement and Voluntary Self-Disclosure and Cooperation Program, first introduced by the Justice Department’s Criminal Division three years ago, grants some protection to companies that promptly disclose misconduct. A March update broadened that protection, which is granted in a declination letter to companies that self-report.

The policy provides latitude for prosecutorial discretion. U.S. Attorneys’ Offices retain flexibility, from determining whether a case qualifies as a voluntary self-disclosure to assessing cooperation and how decisions on declinations are made, said Michael Harper, a partner at K&L Gates, a global firm practicing corporate and regulatory law.

Overall, the department-wide policy provides more clarity and consistency, but he said the devil is in the details of how it is applied.

Seeing whether certain offices try to make a name for themselves as friendlier venues for self-disclosure and declinations is a waiting game, he added.

The Justice Department will decline to prosecute companies that adhere to three stipulations: voluntarily self-reporting of criminal activity to the appropriate component of the department, fully cooperating with law enforcement and timely and appropriately remediating the misconduct.

The exception for prosecution is aggravating circumstances related to the nature and seriousness of the offense.

A final declination letter would theoretically conclude the matter without criminal charges against the company.

At the beginning of 2023, the Justice Department’s Criminal Division announced the program offering companies legal shelter for self-disclosing white-collar crimes. Shortly thereafter, the U.S. Attorneys’ Offices collectively announced a mirrored policy.

The Criminal Division updated its policy last May to consider declination of prosecution against the company. The U.S. Attorneys’ Offices never changed their policies to reflect this — except the Southern District of New York, which acts as a pseudo-independent office, cemented a declination letter, pending cooperation.

The department-wide update on March 10 trumps all other office-specific corporate enforcement policies.

“I think the purpose of this is to try to ensure consistency with how [DOJ] and the 93 U.S. Attorneys’ Offices deal with corporate criminal enforcement and self-disclosure,” Mr. Harper said, adding that the goal appears to be more assurance, clarity and consistency.

How SDNY will use prosecutorial discretion and why it announced the declination letter update before the Justice Department is still unclear. The office told The Washington Times that it does not have any guidance at this time.

Deputy Attorney General Todd Blanche signaled the department-wide corporate enforcement policy in December at the American Conference Institute anti-corruption conference. That could explain why SDNY announced its policy update in late February.

While self-disclosure is often a gamble, the corporate world generally appreciates more specific parameters, Mr. Harper said. At the same time, there remain questions on how this program itself will be implemented. But as more cases are resolved with the department, clarity will come with the precedent.

“I think it’s a step in the right direction,” Mr. Harper said. “But certainly companies still need to fully evaluate the costs and benefits of potential disclosure decisions.”