DOJ’s Pandora’s Box on Enforcement and Business Ethics

Irina Baranova

President Biden’s administration is following through on his promise of a progressive enforcement agenda, particularly in antitrust. While much attention has been given to changes to merger policy and the threat of antitrust cases targeting Big Tech, the Department of Justice’s latest announcement on white collar enforcement policy is equally if not more ambitious.

On Oct. 28, the U.S. Attorney General’s Office announced what amounts to a major change—or extension—of the department’s view of its reach. The policy change comes into play when deciding whether to prosecute or when deciding on a sentencing recommendation for a criminal charge.

Deputy Attorney General Lisa O. Monaco explained that going forward, DOJ prosecutors from the various divisions must “consider the full criminal, civil and regulatory record of any company when deciding what resolution is appropriate for a company that is the subject or target of a criminal investigation.”

On its face, this may seem an anodyne policy statement. The scope of the DOJ’s ambition here, however, is extraordinary.

Monaco explains the full ambition behind this statement, directing prosecutors to ask the following when weighing the prosecution of alleged corporate crimes:
Has this company run afoul of the Tax Division, the Environment and Natural Resources Division, the money laundering sections, the U.S. Attorney’s Offices, and so on? He or she also needs to weigh what has happened outside the department—whether this company was prosecuted by another country or state, or whether this company has a history of running afoul of regulators. Some prior instances of misconduct may ultimately prove to have less significance, but prosecutors need to start by assuming all prior misconduct is potentially relevant.

In a nutshell, Biden’s DOJ has federalized not only local, but global compliance.

When “all prior misconduct is potentially relevant,” this opens an enforcement Pandora’s box. The approach may be counterproductive, insofar as it deters voluntary disclosures that the DOJ should be inviting.

Unpacking This Pandora’s Box

For counsel considering how to advise clients on how to cooperate and resolve a DOJ investigation, there is much to unpack here.

Federal enforcers are directed to consider “all prior misconduct … whether or not that misconduct is similar to the conduct at issue in a particular investigation.” What does this mean for white collar defendants considering their jeopardy in resolving an investigation into alleged price-fixing or bribery in the Biden administration?

Monaco gives several examples, and she includes prior tax violations, environmental, and money laundering—and presumably violations of any other legal obligation that a company may have.

If a company has a prior conviction in an area unrelated to a pending investigation, the DOJ presumes that the company lacks an “overall commitment to compliance.” Thus, a harsher punishment for subsequent violations is thought to be deemed justified, because it may go to the culpability, disregard for the law and potentially future recidivism.

The new policy calls to mind the adoption of three-strikes laws, providing for enhanced sentencing for persons convicted for a third felony. Yet, this is much broader in concept than a three-strikes approach to corporate malfeasance.

More problematic is the direction to include any alleged violation that was previously “prosecuted.” Monaco could have said convicted, but chose to stress prior prosecutions. That raises important double-jeopardy issues.

The U.S. Supreme Court has previously considered three-strikes penalties, and narrowly held them to be constitutional. Three-strikes laws, however, consider prior convictions, not prior prosecutions. When is it ever appropriate for a prosecutor to bring a case, lose, and then get the benefit of that failed prosecution when considering sentencing for a later alleged crime?

The directive also would have prosecutors further consider a company’s “history of running afoul of regulators.” What that means is anyone’s guess.

Another important question is just how far back can a DOJ prosecutor go to consider a violation “relevant.” Can they look back to violations that have passed the statute of limitations? When is past conduct simply no longer relevant?

The recent announcement not only leaves that to the discretion of the prosecutor, it starts from the presumption that “all prior misconduct is potentially relevant.”

Taking the ‘Global Cop’ Role to an Extreme

The U.S. government has long been criticized for its long arm in pursuing extraterritorial convictions. This new policy takes that even further.

As announced, state and foreign prosecutions are also to be considered. The DOJ effectively is saying that a company’s violation of another country’s legal standards can be used against it in the U.S.

But, what does it mean to run afoul of regulators and a jurisdiction different than ours, and how does that go to culpability? If a company has purportedly run afoul of Canadian or Mexican regulators, does that mean they are more culpable for noncompliance under U.S. law?

Even if one could consider a foreign government’s prosecution to satisfy our substantive law and procedure due process requirements, it is hard to imagine a scenario where the federal government can or should consider a foreign prosecution or a regulatory enforcement action.

Deterring Leniency?

Antitrust prosecutions by the DOJ have dropped precipitously over the last five years. These prosecutions overwhelmingly come from leniency applications. As the global exposure for an antitrust violation has increased, applications have fallen.

The DOJ’s new department-wide policy only adds uncertainty and a risk of even greater exposure for companies that become subject to antitrust scrutiny. This is a policy is seriously in need of line-drawing. When a prosecutor is directed to “assum[e] all prior misconduct is potentially relevant,” how to decide when to draw the line and what is “less significant”?

The DOJ may find that this new policy announcement takes deterrence too far. Rather than deter violations, there is a real risk that the policy change will deter the kind of compliance efforts that should be encouraged, such as hotlines, self-audits, internal investigations, and where appropriate self-reporting.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Noah Brumfield is a partner in the antitrust practice at Allen & Overy, where he splits his time between Washington, D.C., and Silicon Valley. He partners with clients to craft and execute global antitrust strategies while also representing them before U.S. courts, the DOJ, the Federal Trade Commission, and various states’ attorneys general offices.

https://news.bloomberglaw.com/class-action/dojs-pandoras-box-on-enforcement-and-business-ethics

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