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What to Learn From the Department of Justice Criminal Enforcement Guidance

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Late last year, the Department of Justice (DOJ) made revisions to its corporate criminal enforcement policies that provide useful insights to corporations and their executives regarding establishing policies and procedures to mitigate criminal liability exposure. Given the continued focus of federal government enforcement actions in the healthcare industry, this updated guidance in the so-called “Monaco Memo” presents an opportunity for health care companies to review their internal practices to ensure that they are operating consistent with DOJ expectations.

Key revisions

The revised enforcement guidance focuses on the following three (3) key areas: (1) individual accountability, (2) corporate accountability, and (3) utilization of oversight monitors.

1. Individual accountability

The Monaco Memo reiterates DOJ’s prior policy statements that its first priority in corporate criminal matters is to hold the individuals who commit and profit from corporate criminal activity accountable for their actions.  To strengthen this focus on individual accountability, the Monaco Memo establishes that cooperation credit can only be received if the corporation timely produces all relevant, non-privileged information about individual misconduct.

DOJ prosecutors have now been instructed to specifically assess whether the corporation promptly notified them of relevant information related to individual misconduct and to reduce or eliminate cooperation credit if they did not do so.

2. Corporate accountability

The Monaco Memo provides further clarification and guidance to prosecutors on the factors to be considered in resolving corporate criminal investigations requiring prosecutors to consider a company’s history of misconduct, voluntary self-disclosure, corporate cooperation, and compliance program effectiveness.

A. History of misconduct

The DOJ instructs prosecutors to consider the timing of past conduct in determining and exercising enforcement discretion.  Generally, prior criminal resolutions entered into more than 10 years before the conduct under investigation, and civil or regulatory resolutions finalized more than five years before the current investigation, should be afforded less weight than more recent enforcement activity.

In assessing criminal accountability, prosecutors also are instructed to consider the entity’s industry and whether any prior misconduct involved common management terms or compliance programs, which signals a tougher approach by the DOJ against recidivism. In addition, companies in highly regulated industries, like heath care, should be compared to other similarly situated companies in the same industry to assess whether alleged misconduct should be subject to criminal enforcement.

B. Voluntary self-disclosure

Health care companies are familiar with voluntary self-disclosure of individual misconduct through the CMS Self-Referral Disclosure Protocol (SRDP) and the Office of the Inspector General’s (OIG’s) Health Care Fraud Self-Disclosure Protocol. The Monaco Memo provides additional advantages to self-disclosures by requiring that agency self-disclosure protocols expressly state the benefits that corporations can expect to receive if they self-disclose.  All DOJ self-disclosure protocols should benefit companies because the department will not seek a guilty plea if a corporation voluntarily discloses criminal misconduct, fully cooperates in the investigation, and timely and appropriately remediates the misconduct.  In addition, the DOJ typically will not require independent compliance monitors for a corporation that voluntarily self-discloses and can demonstrate that it has implemented and tested an effective compliance program.

C. Corporate cooperation

Providing credit for “full and effective” cooperation and using it as a mitigating factor in criminal enforcement activity is embedded in DOJ policy. The level of a corporation’s cooperation with an investigation can affect the form of the resolution, applicable fine range, and undertakings involved in the resolution.

A critical element of determining cooperation is an evaluation of whether a corporation timely preserves, collects, and discloses relevant documents to prosecutors. Recognizing that the disclosure of documents may implicate U.S. and foreign privacy laws or other data disclosure restrictions, the Monaco Memo establishes that prosecutors will provide credit to corporations that are able to navigate such privacy disclosure laws effectively. Conversely, corporations that attempt to use these laws to limit or restrict disclosure of information will be subject to an adverse inference if they fail to produce the protected materials. The corporation bears the burden of establishing the existence of a restriction on its ability to disclose information.

D. Compliance program effectiveness

The DOJ has always considered presence of an effective compliance program and a corporation’s demonstration of a commitment to a strong compliance culture as important factors in resolving criminal investigations.  In addition to historical factors, the recent guidance instructs prosecutors to evaluate a corporation’s compensation structure and policies related to the use of personal devices and third-party applications to evaluate overall compliance effectiveness.

The Monaco Memo instructs prosecutors to consider how a corporation’s compensation system has been used to create a culture of ethical and compliant behavior. To do so, prosecutors should consider whether a compensation system allows for financial penalties against current or former employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal misconduct as part of an overall assessment of a corporation’s compliance program. Favorable components of such a compensation system include opportunities for retroactive discipline, such as use of clawback measures or partial escrowing of compensation.

An effective compliance program may also include compensation systems that reward executives and employees who promote compliance. Such programs may include the use of compliance metrics and benchmarks in compensation decisions and the use of performance reviews to measure and reward compliance-promoting behaviors.

In addition, the DOJ directs prosecutors to consider whether a corporation uses non-disclosure or non-disparagement provisions in employment contracts, severance agreements, or other financial arrangements in an effort to restrict the disclosure of criminal misconduct in evaluating the effectiveness of compliance programs.

In evaluating compliance program effectiveness, the DOJ reviews whether corporations implement policies and procedures to ensure that the use of personal devices and third-party messaging platforms preserves business-related data and communications. Components of those policies and procedures may include evidence of employee training on such policies, enforcement activity related to policy violations, and practices that allow for the collection and disclosure of non-privileged responsive documents and communications via text messaging, emails, chats, phones, tablets, or other devices used for business purposes.

3. Independent monitors

DOJ uses independent monitors to reduce the risk of continued corporate misconduct and ensure that compliance failures are corrected. While prosecutors have discretion to impose monitors on a case-by-case basis, the Monaco Memo provides a list of non-exhaustive factors for consideration in imposing a monitor, including the existence of an effective, tested compliance program and whether the misconduct was long-lasting or pervasive across the organization, or was approved, facilitated, or ignored by senior management, executives, or directors.

4. Monaco Memo guidance in action

DOJ is demonstrating its commitment to the principles of the Monaco Memo as evidenced by recent updates to the Criminal Division’s Corporate Enforcement and Voluntary Disclosure Protocol.  In January, the Criminal Division expanded its existing Foreign Corrupt Practices Act Corporate Enforcement Policy to apply to all corporate criminal matters handled by the Criminal Division.  Consistent with the Monaco Memo’s instructions and guidance, the Criminal Division’s updated enforcement policy now includes a presumption that companies may receive a declination of criminal prosecution even when aggravating circumstances are present if the company:  (i) voluntarily disclosed immediately upon becoming aware of the allegation of misconduct, including voluntary disclosures of activity identified in the merger and acquisition due diligence; (ii) is able to demonstrate it had an effective compliance program at the time of the misconduct and disclosure; and (iii) provides extraordinary cooperation with the DOJ’s investigation and undertook extraordinary remediation actions.

There appears to be no slowdown of federal enforcement activity in the healthcare sector in the foreseeable future. Therefore, the DOJ’s guidance to prosecutors is especially relevant to this industry and provides useful insights on ways to mitigate risks in the event of criminal enforcement activity.

The DOJ clearly states that it will evaluate a corporation’s compliance program in resolving criminal investigations, and health care companies are well-advised to routinely evaluate the effectiveness of their compliance programs so that they can identify any areas of weakness and take remedial actions before their programs become subject to scrutiny by the DOJ or any other enforcement authority.

Photo: tomloel, Getty Images

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