DOJ’s New Corporate Crime Rules Tie Compliance to Executive Pay

The Department of Justice (DOJ) is adopting new policies affecting how it evaluates corporate compliance programs. An announcement at the beginning of March signaled the agency’s intention to further shift responsibility for white-collar crime from shareholders to corporate executives.?

On March 2, Deputy Attorney General Lisa Monaco announced the new Pilot Program on Compensation Incentives and Clawbacks, which will be handled by the DOJ’s Criminal Division. Monaco introduced the initiative during her remarks at the American Bar Association National Institute on White Collar Crime in Miami, Florida.?

“Our goal is to empower companies to do the right thing, by investing in compliance, in culture and in good corporate citizenship – while at the same time empowering our prosecutors to hold accountable those who don’t follow the law,” Monaco said.

The pilot program aims to incentivize companies to update their compensation policies so that they reward executives’ good behavior and punish those engaged in misconduct. The new initiative also aligns with the DOJ’s previously announced plans to crack down on corporate crime using a ‘carrots and sticks’ approach.

Under the new program, every company that reaches a settlement with the DOJ’s Criminal Division will be required to update its compensation scheme to encourage compliant behavior by its executives in the future. In her remarks, Monaco noted that the Criminal Division has already debuted this strategy in its recent deal with Danske Bank, which last December agreed to pay $2 billion to settle its money-laundering probes. According to Monaco, as part of Danske Bank’s plea agreement, the bank committed to revamping its performance review and bonus systems to include compliance criteria.

The pilot initiative also lays out incentives for companies to implement clawback provisions for their executives. The DOJ’s Criminal Division promises to reduce a company’s fine if it attempts to claw back pay from employees who are involved in the misconduct under investigation, either directly or by failing to supervise employees engaging in misconduct and/or turning a blind eye to violations.?

According to the DOJ, firms that start the process of clawing back compensation from execs may be able to deduct the amount from their criminal penalties. Even if a company fails to recoup pay from culpable execs, it may still be eligible for a reduction in its fine by 25% of the sum it attempted to get back.

It’s worth noting that the Securities and Exchange Commission (SEC) already has the power to force CEOs and CFOs to return incentive pay if their companies engage in accounting violations after the SEC adopted a new clawback rule in October of last year.

In her remarks, Monaco summed up the pilot program’s goal, saying it aims to “shift the burden of corporate malfeasance away from uninvolved shareholders onto those more directly responsible.”

The Deputy Attorney General further highlighted the increasing intersection between corporate crime and national security caused by the “very uncertain” geopolitical environment. She reiterated the DOJ’s growing investment in sanctions enforcement against Russia, going so far as to say that “sanctions are the new FCPA.”

Other areas related to corporate crime enforcement that the DOJ sees as a priority, according to Monaco, include promoting voluntary self-disclosure and focusing on individual accountability to deter wrongdoing.

Despite the DOJ’s clear goal of curbing white-collar crime, legal experts note that some questions remain around the actual enforcement of the new rules, such as prosecutors’ subjectivity in assessing "good faith" efforts to claw back pay, for instance. In any case, DOJ’s increased focus on corporate crime means that now is a good time for businesses to audit and retool their compliance programs to stay up to date with the changing regulatory environment.