1-18.000 – General Civil Settlement Principles

1-18.100 – General Civil Settlement Principles

The Department of Justice follows general principles in settlement of civil litigation regarding transparency, tax neutrality, press releases, etc.  This policy provides internal guidance only and does not create any rights enforceable in law or otherwise. DOJ components may promulgate more specific policies, consistent with and subject to this Policy.

[new April 2018]

1-18.200 – Settlement Transparency

“It is the policy of the Department of Justice that, in any civil matter in which the Department is representing the interests of the United States or its agencies, it will not enter into final settlement agreements or consent decrees that are subject to confidentiality provisions, nor will it seek or concur in the sealing of such documents.”  28 C.F.R. § 50.23.  While there may be “rare” exceptions to this policy that may be invoked only by certain Department officials, see id., as a general rule, civil settlements are subject to the principles of openness in judicial proceedings. 

[new April 2018]

1-18.300 – Tax Consequences of Settlements

Department plea agreements, non-prosecution agreements, and deferred prosecution agreements, as well as Department civil case settlements, may contain acknowledgements of tax law by the entity entering into the agreement that no tax deduction may be sought in connection with the payment of a penalty or other amounts.  The Tax Cuts and Jobs Act, Pub. L. No. 115-97, amended 26 U.S.C § 162(f) to deny, with exceptions, the deductibility of any amount paid or incurred by suit, agreement or otherwise, to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation into a potential violation of law.  Section 6050X was also added to require the government or governmental entity to report to the Secretary of Treasury amounts required to be paid because of a suit or agreement.  The changes to the law are effective for a binding order or agreement entered into or approved by a court on or after December 22, 2017.

On March 27, 2018, the Department of the Treasury and the Internal Revenue Service (IRS) published Notice 2018-23.  In addition to announcing Treasury’s intent to develop proposed regulations and requesting comment by May 18, 2018, the notice delays the § 6050X reporting requirement to no earlier than January 1, 2019.  Thus, any order or settlement agreement is not currently subject to the reporting requirement, and therefore department attorneys do not have a reporting obligation.

26 U.S.C. § 162(f)(2) outlines the exceptions to non-deductibility.  The provision indicates that amounts that constitute restitution or are paid to come into compliance with any law that was violated or otherwise involved in the investigation may be deductible, but only if the amount is identified as restitution or an amount paid to come into compliance in the court order or settlement agreement, as well as meeting other requirements. The Treasury Department is expected to issue regulations on the application of this provision, and the Department is developing internal policy on its application.

Apart from compliance with the foregoing provisions of law and any applicable guidance, or otherwise including a provision in a settlement expressly barring deduction of particular expenses, the Department shall otherwise seek in non-tax cases to remain neutral in any potential dispute between a settling party and the IRS regarding the tax consequences of a settlement, whether the settlement involves payment to or from the private party. To the extent possible and practicable, settlement documents also should not characterize payments made by the United States or its agencies as a substitute for wages or as compensatory damages, etc 

Although the Department may identify an amount as restitution or an amount paid to come into compliance, the statute provides that “[t]he identification under clause (ii) alone shall not be sufficient to make the establishment required under clause (i),” so there may be a remaining legal issue as to the application of 26 U.S.C. § 162(f)(2)(A)(i), as to which the Department will seek to maintain neutrality.

[new April 2018]

1-18.400 –Civil Settlement Press Releases

It is Departmental policy that whether a press release will be issued, the content of a release, and the timing of a release should not be negotiated.  Other parties to litigation should not be permitted to review a press release before it is issued.

[new April 2018]

1-18.500 – Resolutions of Affirmative Civil Enforcement Matters Against Business Organizations

Department attorneys should apply the following principles to resolutions with business organizations in affirmative civil enforcement matters. These principles reflect and incorporate the Department’s longstanding views that, as in the criminal context, civil enforcement actions should hold corporate and individual wrongdoers accountable; encourage compliance with the laws, self-disclosure, and cooperation with investigations; provide full compensation to federal agencies and other damaged parties; and, where appropriate, deter and penalize repeat bad actors. This provision confirms these principles apply to civil settlements with business organizations while also recognizing the diverse situations that apply to civil enforcement matters, which may involve a combination of legal, administrative, and equitable relief that must be tailored to the specific circumstances.

A. Considerations in Resolving Affirmative Civil Enforcement Matters

Department attorneys should ensure that a civil resolution holds the business organization accountable as set forth in the relevant statute. Affirmative civil enforcement resolutions can include a range of remedies, including recovering damages, response (also known as “clean up”) costs, or other losses to federal agencies or other victims; enjoining violations, preventing future violations, or redressing the effects of violations; requiring the business organization to take actions to bring it into compliance with the law; imposing civil penalties; and entering consent decrees.

When determining how to resolve affirmative civil enforcement matters against business organizations, Department attorneys should, as appropriate under the relevant statutes and component policies, and in light of the legal, administrative, or equitable nature of the proceeding, consider the nature and seriousness of the violation; the scope or systemic nature of the conduct; the public harm or risk of harm from the violation; whether the compromise adequately serves the United States’ interests; the ability of a wrongdoer to satisfy an eventual judgment; litigation risks presented if the matter proceeds to trial; probable consequences of litigation or settlement; and the availability of administrative remedies, including exclusion, suspension or debarment or other remedial measures, where applicable. These considerations should be evaluated holistically and in light of the purposes of the relevant statute and the remedies it provides. In some matters, particularly those where a statute requires court approval for the resolution of a claim, the statute may dictate the factors to be considered. Although potential negotiated remedies are not limited to those provided by the governing statute, they should not conflict with the applicable statute.

Much of the Department’s affirmative civil enforcement implicates the work of partner federal agencies, including their role in administering and funding government programs, regulating and overseeing entities or industries, or using administrative enforcement authorities. Department attorneys should consider the agencies’ priorities and views in resolving affirmative civil enforcement actions against business entities. This includes, but is not limited to, giving due consideration to the agency in assessing whether remedial measures or oversight of future conduct may be appropriate and obtained through agency action. See generally, e.g., JM 1-12.000; JM 4-1.410; JM 4-1.520; JM 4-4.110; JM 4-11.160; JM 5-12.340; JM 5-12.611; JM 5-12.613; JM 6-4.400; JM 6-5.330.

B. Considerations Relating to Individual Accountability, Cooperation, and Repeat Bad Actors

Department attorneys should, as appropriate under the relevant statutes and component policies, and in light of the legal, administrative, or equitable nature of the proceeding, consider additional factors when resolving affirmative civil enforcement matters against business organizations. These factors include:

1. Holding individual wrongdoers accountable. One of the most effective ways to combat misconduct by business organizations is to hold accountable individuals who perpetrated the wrongdoing. Such accountability deters future misconduct, incentivizes changes in behavior in the organization, ensures that the proper parties are held responsible for their actions, and promotes the public’s confidence in our justice system.
2. Incentivizing compliance, self-disclosure, remediation, and cooperation. The Department has a strong interest in incentivizing companies and individuals that identify misconduct to voluntarily disclose it to the government in a timely manner; to cooperate in investigations; to take remedial measures in response to misconduct; and to have an effective compliance program. Such steps benefit the Department by enabling it to take action concerning previously unknown misconduct, to preserve and gather evidence that would otherwise be lost, and to reduce the risk that the misconduct will occur again.
3. Deterring or penalizing repeat bad actors. A business organization’s history of misconduct, including violations of criminal or civil laws or regulations, may be indicative of whether the company has a corporate culture that fails to deter violations of the law. Not all instances of prior misconduct are relevant or probative. To the extent that a company engages in misconduct that is the same or very similar to past misconduct, it may suggest that the company acted knowingly.

Components should develop policies that ensure that these additional factors (holding individual wrongdoers accountable; incentivizing compliance, self-disclosure, remediation, and cooperation; and deterring or penalizing repeat bad actors) receive appropriate consideration, where applicable, in resolutions of affirmative civil enforcement matters with business organizations. See generally, e.g., JM 4-3.100; JM 4-4.112.

C. Application

The considerations discussed in this provision will not apply in every case. In some cases, certain factors will weigh more heavily than others, and in other cases, some factors may not apply at all. For example, resolutions of claimed violations of statutes providing only equitable relief as a remedy may require weighing the factors described in subsection (B) differently than resolutions related to statutes designed to recover only costs or damages for the United States. In all cases, Department attorneys must exercise their thoughtful and pragmatic judgment in applying and balancing these considerations, as appropriate, to achieve a fair and just outcome and promote respect for the law.

When the conduct under investigation implicates specific enforcement authorities of the Civil, Criminal, Antitrust, Tax, Environment and Natural Resources, National Security, or Civil Rights Divisions, Department Attorneys should consider the practices and policies of the appropriate Division of the Department, and consult, as appropriate, with the impacted component of the Department.

These principles provide internal Department of Justice guidance. They are not intended to, do not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. Nor are any limitations hereby placed on otherwise lawful investigative and litigative prerogatives of the Department of Justice.

[new November 2024]