On March 2, 2023, the U.S. Department of Justice ("DOJ") Environmental Crimes Section ("ECS") announced policy revisions designed to incentivize companies to voluntarily disclose potential violations. The changes come in the wake of other similar policy revisions throughout the Department, following Deputy Attorney General ("DAG") Lisa Monaco's memo (the "Monaco Memo") requiring that all DOJ criminal prosecuting components review their policies on corporate Voluntary Self-Disclosure ("VSD"). This marks the first time ECS has modified its long-standing VSD policy.
DOJ has also simultaneously issued related Department-wide policies and updated the Justice Manual accordingly. These include a revision to the June 2020 Memo on the Evaluation of Corporate Compliance Programs ("ECCP"), and a new policy on Compensation Incentives and Clawbacks. The revised ECCP and the Clawback memo put significant focus on whether companies have included compliance in their compensation programs, and especially focus on whether deficits in compliance are reflected in reduction in compensation, or even clawbacks of previously paid compensation.
Voluntary Disclosures of Environmental Misconduct
ECS' original 1991 VSD policy was designed to encourage voluntary disclosure of potential environmental violations. While many aspects of the 1991 policy remain, the new ECS policy incorporates broader requirements regarding corporate compliance. Specifically, the new VSD policy provides a description of benefits ECS prosecutors will confer on companies that complete the VSD process and outline criteria that may limit the scope of such benefits in certain cases. The new VSD policy also explicitly states that companies that voluntarily self-disclose potential misconduct to ECS "will receive resolutions under more favorable terms than if the government learns of the misconduct through other means."
It is therefore critically important for regulated entities to promptly review their self-audit, internal investigation, corporate culture assessments, and other compliance functions and assess the degree to which they align with, or fail to align with, the government's increasingly sophisticated expectations on compliance programs. We have seen several indicia of these expectations. One indicator of these expectations is found in DAG Monaco's October 2021 speech announcing that all of DOJ's criminal prosecuting units must examine the broad compliance record of regulated entities as a factor in determining whether to bring criminal charges.
Her words are worth repeating:
Going forward, prosecutors can and should consider the full range of prior misconduct, not just a narrower subset of similar misconduct - for instance, only the past FCPA investigations in an FCPA case, or only the tax offenses in a Tax Division matter. A prosecutor in the FCPA unit needs to take a department-wide view of misconduct: 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.
ECS's new VSD policy confirms that prosecutors will take a comprehensive, holistic view of an organization's entire compliance program in making prosecutorial decisions. Footnote 9 of ECS's new VSD Policy states:
In evaluating the pervasiveness of misconduct in environmental cases, prosecutors should consider the following non-exhaustive list of considerations: the length of time over which misconduct took place; the number of distinct violations; the number of individuals involved and their level within the company; whether company managers or owners were participants or otherwise aware of the misconduct; whether other criminal misconduct took place; the degree to which the company policies or lack thereof contributed to the misconduct; and "all misconduct by the corporation discovered during any prior domestic or foreign criminal, civil, or regulatory enforcement actions against it, . [its] parent, divisions, affiliates, subsidiaries, and other entities within the corporate family."
Taken together, DOJ has put all compliance efforts (and shortcomings) of a regulated entity onto the scale in determining what level of enforcement is called for in a particular instance. As such, it is critical for organizations to conduct an internal review of their compliance mechanisms to proactively prepare for the government's evolving priorities.
ECS VSD Policy Revisions
Notably, ECS's new VSD policy explicitly states that companies can qualify for a criminal declination if they satisfy certain criteria. Absent the presence of aggravating factors, ECS will now decline to pursue criminal charges in a matter where a company has: (1) made a voluntary disclosure, (2) fully cooperated with ECS's investigation (including by identifying and taking appropriate action against responsible individuals within the company), and (3) timely and appropriately remediated the alleged violation. It is important to recognize, however, that the existence of the "aggravating factors" caveat continues to provide ECS prosecutors significant prosecutorial discretion.
Under the new VSD policy, aggravating factors include misconduct that:
- Posed a threat of serious adverse impact to the environment, public health and safety, worker safety, wildlife, or natural resources;
- Involved knowing endangerment of, serious injury, or death to any individual;
- Was deeply pervasive throughout the company;
- Involved concealment or obstruction of justice by senior management of the company;
- Was followed by lack of full cooperation; or
- Was followed by lack of timely and appropriate remediation.
To qualify for a declination, the company's disclosure must also be truly voluntary (i.e. there cannot be a preexisting legal obligation to disclose the violation), done in a timely way (i.e. prior to government discovery, prior to the misconduct being publicly disclosed, and within a prompt time of the company becoming aware of the misconduct), made directly to ECS and/or the U.S. Attorney's Office, and include all relevant facts and individuals known to have been involved. ECS will also provide an additional benefit if the potential misconduct was discovered through the company's own internal compliance mechanisms. Notably, given the broad disclosure requirements already incorporated in environmental laws, it is not entirely clear what would satisfy the "truly voluntary" requirement of the policy. It remains to be seen whether a disclosure made by a company regarding information that was otherwise arguably required by law to be disclosed will ever be viewed as a "voluntary" self-disclosure under the policy.
If aggravating factors are present but the company otherwise complies with the VSD requirements, a company will not qualify for a declination but a favorable plea agreement may be an option. The government will consider a reduction in the number and type of charges and/or recommend to the sentencing court a more lenient criminal fine or period/conditions of probation. However, while the VSD policies announced by other DOJ components, such as the Criminal Division, refer to significant and specific percentage penalty reductions under Chapter 8 of the US Sentencing Guidelines, ECS's VSD policy does not. This is likely because criminal fines in environmental cases are not governed by the Sentencing Guidelines. It is important for entities to consult with counsel experienced in the interplay between the statutory fine amounts for environmental crimes, and the far larger fine amounts that may be sought under the Alternative Fines provisions found at 18 U.S.C. § 3571(d) when such cases arise.
The revised VSD language reflects DOJ's broader focus on deterring recidivism. As reflected in the preceding Monaco Memo, DOJ is more willing than ever to provide first-time offenders with benefits for voluntary disclosure. This includes the potential for declination, or heavily reduced penalties, or avoidance of the imposition of an outside monitor. In cases where a company has (1) made a voluntary self-disclosure under the new policy; (2) fully cooperated with the government (including cooperation against responsible individuals); and (3) timely and appropriately remediated the criminal conduct, ECS will not require the imposition of an independent compliance monitor if the company demonstrates at the time of resolution that it has implemented and tested an effective compliance program. The new VSD policy provides that, in evaluating whether the company has implemented and tested an effective compliance program, ECS will rely on existing Division and Department guidance, including the Justice Manual and the Monaco Memo, as well as "cognizant" regulatory agencies and experts. However, it is worth noting that ECS explicitly retains the discretion as to whether to impose a monitor on a case-by-case basis. On the one hand, DOJ has made clear that prosecutors are encouraged to consider the use of monitors as a means of ensuring that agreed upon remedial efforts are completed. On the other hand, companies following the VSD policies are more likely to avoid the imposition of a monitorship.
The parameters of the ECS's VSD policy will only become clear over time. In the coming months it will be important to see whether ECS is able to establish a record of issuing declinations or providing significantly reduced penalties and/or post-conviction remedies when companies seek to self-disclose under the VSD policy. If honored, the opportunity afforded under the VSD could be substantial, including declination of criminal prosecution entirely. Conversely, subsequent violations may be subject to even more severe sanctions and post-conviction oversight. It is therefore more important than ever for companies to take stock of their corporate culture and other risk factors that could undermine efforts at maintaining a sustainable compliance function.
Going Forward Recommendations
ECS's VSD policy is part of a Department-wide effort to obtain more disclosures, to encourage companies to build sustainable compliance cultures and programs, and to more broadly deter "knowing" or "negligent" violations of environmental laws, regulations, and permits. As DOJ's compliance policies become more prescriptive, it is crucial to pressure-test existing policies across the entire spectrum of management to address these expectations, and to promptly assess whether compliance issues identified either in the normal course or due to incidents should be the subject of a voluntary self-disclosure.
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