Since last fall, four cases have underscored this stricter approach, with Glencore, NatWest and US units of Allianz and Balfour Beatty all pleading guilty to corporate crimes. That is a notable shift from the past, when the DOJ would often settle for deferred prosecution agreements (DPAs), deals that allowed companies to pay a fine without having to admit any guilt.
“This is demonstrating that the DOJ wasn’t just saying it would turbocharge corporate enforcement,” says Mark Bini, a partner at Reed Smith and a former federal and state prosecutor. “It’s putting a marker down and making good on its promises that it is going to be very aggressive in this area.”
For example, the US subsidiary of Allianz Global Investors – the German insurer’s asset management arm – in May pleaded guilty to criminal securities fraud for misleading investors about the risk of certain funds that collapsed at the outset of the Covid-19 pandemic. That landed Allianz with a $6bn fine, one of the largest in US corporate history.
Glencore also pleaded guilty in May and agreed to pay a penalty of more than $1.1bn under the Foreign Corrupt Practices Act (FCPA) for paying bribes to officials in seven countries across Africa and South America. The resolution also included a so-called “CCO certification”, which requires a company’s chief compliance officer to attest that its compliance program is “reasonably designed”—with CCOs potentially facing criminal liability for false attestations.
Common threads across sectors
Lawyers say there are a number of similarities in both cases that triggered the DOJ’s more stringent enforcement actions.
“The common threads were a failure to self-report, a failure to cooperate fully and also the compliance programs were simply not up to par in both of those companies and that’s something the DOJ is very focused on,” says Julia Nestor, a partner at Reed Smith and a former federal prosecutor.
The increased focus on compliance reflects the way the DOJ has recently been staffing up. In June, the DOJ hired former Hewlett Packard compliance chief Glenn Lyon as the head of its criminal fraud section. Kenneth Polite, Assistant Attorney General for the DOJ’s criminal division, was also formerly chief compliance officer at US energy company Entergy.
“It is going to go after corporations that don’t show robust compliance,” says Nestor. “The CCO certification that you saw with Glencore is another example of the emphasis on compliance. They’re not just saying tone at the top is something they require, they want to see it play out in action.”
“The DOJ is putting a marker down and making good on its promises that it is going to be very aggressive in this area.”
Mark Bini, partner, Reed Smith
Another factor that is resulting in a greater number of guilty pleas is that the DOJ is now taking into account a greater range of past behavior. “It used to be that the DOJ really only looked at a company’s criminal history in very related areas, but now it’s directed that prosecutors should take a broader view,” says Alison Anderson, a partner at Boies Schiller Flexner and a former assistant deputy chief at the DOJ. “Now they are looking at whether a company had criminal or regulatory problems somewhere else in the business.”
In December 2021, for instance, NatWest pleaded guilty for placing fake – or “spoof” – orders designed to artificially inflate or depress US Treasury futures prices so it could profit by buying or selling US Treasuries. It was ordered to pay a £35m fine as part of the overall resolution, which was exacerbated by the bank’s “substantial prior history” of other criminal, civil and regulatory failings. “The DOJ really hammered home the company’s history of misconduct in the discussion of its reasoning for the resolution,” Anderson explains.
Turning up the heat
The DOJ is also turning up the heat on individuals. In the Allianz case, for instance, three portfolio managers were charged in connection with the fraud, which allegedly involved sending fake investor documents that understated the risk of the funds, as well as inflating results to boost performance-related pay.
“In the past it’s been hard to pin responsibility on individuals within an organization – it’s very easy for corporations to just spread the blame and as a result, individuals who were aware and had supervisory responsibilities have got away with some fairly bad cases of misconduct, because they’ve been collectively protected by their employers,” says Alex Viall, Director of Regulatory Intelligence at Global Relay. “Now the DOJ is basically saying it’s much more interested in individual liability, and if companies are prepared to effectively throw individuals under the bus, it will be much more lenient in how it deals with the company.”
But pleading guilty also has broader implications for companies.
“There are all kinds of collateral consequences for a company that come from a guilty plea that are much more significant than a DPA,” says Anderson. Allianz’s guilty plea, for instance, prevents Allianz Global Investors from providing advisory services to US-registered investment funds for 10 years.
While the DOJ is increasing its focus on corporate crime, there are certain types of corporate crime where it is deploying more resources.
A stronger focus on old crimes
“This administration made it clear that foreign bribery was a national security concern in late 2021,” says Bini. “Sanctions enforcement has also become a huge priority following Russia’s invasion of Ukraine. Deputy attorney general Lisa Monaco has stated that the use of sanctions is the new FCPA. Then the third priority is crypto. We’ve seen several large cryptos failing and going into bankruptcy. Traditionally, when there is a pullback financially in any market – and there has been a huge one in crypto – a lot of fraud is revealed.”
Given this more intense enforcement backdrop, all companies should be taking any lessons they can from these recent guilty plea resolutions. That includes self-reporting if wrongdoing is uncovered internally, fully cooperating with any investigation, and ensuring compliance programs are fit for purpose.
“There’s nothing better than retelling war stories for the various lines of defense to understand the risks and how to spot this sort of activity.”
Alex Viall, Head of Regulatory Intelligence, Global Relay
“All companies should do a full compliance health check, right now, to see how their compliance stacks up in general with the government’s expectations,” says Anderson. “If the company has a history of any misconduct or being accused of anything, they should look there first and make sure they have strengthened their compliance in a way that makes sure that the same conduct couldn’t be repeated or happen again.”
To reduce the chances of a guilty plea or other onerous resolution requirements, such as monitorships –where an independent monitor is installed in a company to report on remediation efforts – companies need to ensure they immediately fix any problems.
“If you get investigated, the minute that happens, you need to be working to remediate and try to beat the clock and get it done before you’re resolving with the government,” says Anderson. “You really have to get a move on at the beginning of these investigations if you want to avoid a monitorship.”
Training the enforcers
Companies also need to ensure compliance teams are well trained and can identify early on the clues that might indicate fraudulent behavior or other corporate criminality.
“Training is so important – there’s nothing better than retelling war stories for the various lines of defense to understand the risks and how to spot this sort of activity,” says Viall. “Wherever there is a big potential swing in compensation, you just can’t be too diligent for those conflict instances.”
No one expects this to be a short-lived trend. This tougher enforcement backdrop is only likely to accelerate as investigations spurred by the DOJ’s sharper focus on corporate crime starts to yield results. “We expect to see more guilty pleas and more individuals being prosecuted as the DOJ continues to follow through with its promises,” says Nestor.