It is a privilege to join you today on behalf of the Department of Justice’s Criminal Division. I have been fortunate enough to have spent almost my entire professional career serving in the Department of Justice. After clerking, I joined the U.S. Attorney’s Office in the Southern District of New York, where I worked in both the Civil and Criminal Divisions, most of that time specializing in national security and international drug trafficking prosecutions.
In August 2017, I came down here to Washington to work in the Criminal Division, where I currently serve as the Principal Deputy Assistant Attorney General. Since arriving 14 months ago, I have been overwhelmingly impressed by the tremendous talent and dedication of the hardworking women and men of the Criminal Division, who day in and day out combat a broad range of serious crimes that threaten our citizens.
Karen Popp and Adam Safwat have put together an outstanding program today, including panels on very timely subjects and what I expect to be a fascinating question and answer session later this afternoon with my colleague, Leo Tsao. Leo heads up the Bank Integrity Unit in our Money Laundering and Asset Recovery Section (MLARS), and previously was a supervisor in the Fraud Section’s FCPA Unit. Leo brings to the table a wealth of experience and knowledge and I am sure that everyone will benefit greatly from his insights and perspective.
This is actually the second GIR event that I have spoken at within the past week. Last Thursday, I spoke at a Latin Lawyer and GIR conference on anti-corruption investigations in São Paulo, Brazil. I must say that I greatly appreciate the much shorter commute from the RFK Building to Hogan Lovells.
In Brazil, I discussed with U.S. and Latin American lawyers and others from the private sector, including compliance personnel, the Department of Justice’s efforts to establish settled and predictable guideposts by which prosecutors exercise their discretion. Our goal at the Department is that by setting clear principles with an eye on providing tangible incentives for good corporate behavior, companies will realize that it is in their best interest to implement effective compliance programs and, if they uncover misconduct, to voluntarily self-disclose to law enforcement, fully cooperate, and appropriately remediate.
That commitment to transparency has been a constant theme in policies the Department has announced over the past 12 months – such as the FCPA Corporate Enforcement Policy, the policy governing coordinated resolutions, and the recently announced Criminal Division policy pertaining to monitorships.
Similarly, by publicly disclosing our reasons for declining prosecution, as well as for entering into criminal resolutions, it is our hope that companies will understand what we expect of them in order to qualify for a declination after they uncover wrongdoing.
Of course, dialogues with the bar and the private sector like today’s event – and last week’s in Brazil – add to that transparency. For example, back in July at an American Conference Institute event, our Deputy Assistant Attorney General over the Fraud Section, Matthew Miner, explained that the principles of the FCPA Corporate Enforcement Policy will be applied to mergers and acquisitions that uncover potential FCPA violations. And last month, at a GIR event in New York City, Matt further announced that the Criminal Division will apply the principles of the Corporate Enforcement Policy in the context of mergers and acquisitions that uncover misconduct other than just FCPA violations.
Matt and I have been speaking at these events precisely because we believe that an open dialogue with the bar and the private sector advances the interests of both law enforcement and the private sector alike.
In that spirit, this afternoon, I want to cover a few topics that I think will be of interest to those in this room, particularly in light of the panels that will follow today, and are topics that I know are of interest to me and my fellow prosecutors at the Department of Justice. First, I want to speak briefly about the priorities of the Criminal Division with respect to corporate enforcement, and how we are pursuing those priorities. Next, I plan to address what we expect from companies who choose to voluntarily self-disclose misconduct and seek to cooperate with law enforcement. While every case is different, there are certain general observations that I hope will be useful. Lastly, I plan to discuss the Criminal Division’s commitment to reaching fair and equitable resolutions, including through the principles reflected in the Criminal Division’s policy with respect to monitors.
Let me start with our law enforcement priorities.
In 2018, the Criminal Division is laser-focused on a number of vitally important law enforcement priorities of the Attorney General. We are aggressively dismantling violent gangs that are terrorizing communities all across the United States. Attorney General Jeff Sessions recently announced the creation of the Transnational Organized Crime Task Force, and identified five criminal organizations as the targets for the Task Force – including several violent drug cartels that are being aggressively targeted by the Criminal Division.
As part of this initiative, the Attorney General just last week announced charges brought by the Criminal Division and various U.S. Attorney’s Offices against numerous alleged leaders of the Cartel Jalisco Nueva Generación, or CJNG. CJNG has vied for territory with the similarly violent and lawless Sinaloa Cartel. In just about two weeks, Criminal Division prosecutors, along with Assistant U.S. Attorneys from the Eastern District of New York and the Southern District of Florida, are scheduled to start trial in Brooklyn against the alleged leader of the Sinaloa Cartel.
The devastation inflicted by the violence of the cartels – both here and in Mexico – is equaled or surpassed by the damage done by the drugs that they have poured onto the streets of our communities. Nowhere is this more apparent than in the opioid epidemic that is currently ravaging our cities and towns all across the country. This morning, the Attorney General hosted a National Opioid Summit and announced new strategic actions to combat the crisis.
The opioid crisis, unfortunately, has been fueled, in large part, by fraud in connection with taxpayer-funded health care programs. In June, the Fraud Section conducted the largest healthcare fraud takedown in the Department’s history, charging over 600 defendants, including 76 doctors, across 58 districts, with more than $2 billion in Medicare fraud. Of those defendants, over 160 individuals, including 32 physicians, were charged in cases involving the illegal distribution of nearly 13 million dosages of opioids. Over the summer, we announced the establishment of a new Medicare Fraud Strike Force covering the District of New Jersey and the Eastern District of Pennsylvania, to combat rampant health care fraud in those regions.
As you can see, there is no shortage of law enforcement priorities that are consuming the days, nights, and weekends of the dedicated prosecutors in the Criminal Division. But even as we dedicate resources to these priority efforts, I am here to tell you that corporate enforcement remains a top priority for the Criminal Division – and that will not change.
The reasons why are plain. Manipulation of our markets threatens the integrity of our financial system. Corporate corruption not only distorts private competition, it also erodes the public trust in our markets and economy. Bribery of government officials hurts not just businesses that play by the rules and their employees, but empowers corrupt government officials to advance their own personal interests at the expense of the interests of their citizens and of the national security and economic interests of other nations.
The Criminal Division’s commitment to corporate enforcement has been on full display with our emphasis on individual accountability. A company only acts through its employees and agents. It therefore makes sense to focus our investigative efforts on the culpable individuals – both to secure appropriate punishment for the bad actors, and to have the greatest impact on preventing and deterring corruption.
You need look no further than the past 30 days to see the Criminal Division’s commitment to individual accountability. Last Wednesday, two former Deutsche Bank traders were found guilty after trial in the Southern District of New York for their participation in a scheme to manipulate the LIBOR. The day before, a former executive of State Street was sentenced after being convicted at trial for engaging in a scheme to defraud bank clients through secret commissions applied to billions of dollars of securities trades. In late September, the former CFO of a publicly traded financial services and marketing company called Bankrate was sentenced for his role in an accounting and securities fraud scheme that caused more than $25 million in shareholder losses. And this coming Monday, Fraud Section prosecutors are scheduled to start a trial in Las Vegas involving an alleged $1.5 billion Ponzi scheme.
This focus on individual accountability extends to FCPA enforcement as well. Our FCPA Unit prosecutors are scheduled to conduct six trials against individuals over the next eight months. On the FCPA side of the house, our prosecutors are scheduled to conduct six trials against individuals over the next eight months. That is on top of the three FCPA Unit trials we had in calendar year 2017.
Our enforcement actions against corporations likewise have remained robust – both in volume and scope. Recent resolutions have covered a broad spectrum of corporate criminal activity, from bribery of foreign officials including not just traditional bribery but also awarding employment to friends and family of foreign officials to win banking business, to LIBOR manipulation, to foreign exchange frontrunning schemes, to manipulation of the commodities and futures markets through so-called spoofing activity.
A primary goal of the Department in addressing such corporate misconduct is to encourage good corporate behavior, and our commitment to this goal has been reflected in our recent declinations. Ten declination letters issued pursuant to the FCPA Corporate Enforcement Policy and the predecessor Pilot Program are publicly available on the Department of Justice’s website. Each of those declination letters cite as bases for the declination such factors as the company’s voluntary self-disclosure, cooperation with investigations into culpable individuals, enhanced compliance programs and internal controls, and other acts that demonstrated full remediation.
And in appropriate circumstances, the benefits of voluntary self-disclosure, cooperation, and remediation can extend beyond the FCPA context. In March, we publicly released a declination for Barclays in connection with frontrunning of foreign exchange transactions from August to October 2011. Barclays traders misappropriated confidential client information in connection with foreign exchange options and spot transactions, and deceived the client regarding the nature of its trading.
While we brought criminal charges against individuals involved in this conduct, we declined prosecution as to Barclays. Even though this was not an FCPA violation, we considered many of the same principles underlying the FCPA Corporate Enforcement Policy to determine that a declination was the appropriate result. In particular, Barclays timely and voluntarily self-disclosed the misconduct; conducted a thorough internal investigation; fully cooperated, and continues to cooperate, including with respect to culpable individuals; is enhancing its compliance program; and agreed to full remediation, including paying restitution and disgorgement of ill-gotten gains.
We hope our recent declinations make it plain to companies that it is in their interest to promptly and voluntarily self-disclose, cooperate, and engage in meaningful remedial actions.
The message should be clear: we remain committed to protecting free markets, promoting ethical business practices, and investigating and prosecuting those who engage in corporate corruption, while at the same time reaching fair and appropriate resolutions.
To that end, I want to take a few minutes to discuss what we expect in terms of voluntary self-disclosure and cooperation, because these are questions we are often asked about.
For instance, we are regularly asked, “How quickly does a company need to disclose misconduct to be considered ‘timely’?” Or, “What constitutes full cooperation?” – particularly with respect to the company’s internal investigation. Of course, these are difficult questions to answer in the abstract. Every case is different, and the answers are largely driven by the specific of each case. That said, there are some general principles that I believe can help guide companies and their advisors through the process.
As most of you know, the FCPA Corporate Enforcement Policy contains detailed, multi-factor definitions of what constitutes “voluntary self-disclosure,” “full cooperation,” and “timely and appropriate remediation” under the Policy. I will not reiterate those enumerated factors.
But to state the obvious, in terms of timing, companies should make their initial disclosures sooner rather than later. To qualify for full credit under the FCPA Corporate Enforcement Policy, a company’s disclosure must occur prior to an imminent threat of disclosure or government investigation, and within a reasonably prompt time after becoming aware of the offense.
To be clear, this does not mean that a company needs to pick up the phone immediately after receiving a whistleblower complaint. We recognize that it may take a little time for a company to assess the credibility of an allegation before coming forward. But the timeliness requirement also means that a company should not wait until after completing a significant internal investigation before coming forward.
When a company makes a disclosure early in the process, it allows us to take investigative steps that would not be available to us at a later date – including, for example, preserving and obtaining contents from personal email accounts used in the scheme, and engaging in recordings of co-conspirators before they are made aware of the investigation. Early disclosure allows us to de-conflict with the company, which is particularly important if the case overlaps with other ongoing activities underway by the government. Early disclosure also reduces the potential for actions that could thwart our ability to investigate and prosecute culpable individuals – for example, the intentional destruction of evidence by co-conspirators or the routine deletion of materials by companies or service providers. And, for older conduct, early disclosure provides us with the best opportunity to build cases against culpable individuals prior to the expiration of any statute of limitations.
But we also understand that when a company reports wrongdoing at an early stage of the company’s internal investigation, it will not have all the answers and may not yet understand the full scope of the wrongdoing. Investigations take time, and the earlier a company reports misconduct, the less it will have been able to wrap its arms around the allegations. We will not, on the one hand, penalize companies for failing to disclose early enough, and on the other, punish the company for not being able to know all the facts when it does disclose early.
One final point on early disclosure: although it is impossible to say across-the-board what is too early and what is too late, companies should be mindful that the longer they wait, the more likely a whistleblower will come forward, or the Department will otherwise learn about the allegations perhaps from our own investigation – either into that entity or another – or from information shared by foreign authorities. If we discover the misconduct before the company discloses it, it extinguishes a company’s ability to secure all of the benefits that accompany a voluntary self-disclosure.
Once a company decides to cooperate, I would like to point out a few key items that the company should provide to put it in the best position to maximize cooperation credit.
In addition to whatever specific requests our prosecutors may make during the initial conversation of a particular case, a company should be prepared to provide details of what it knows about the wrongdoing so far, and the investigative steps it has taken to date. This includes a clear explanation of who is overseeing and undertaking the investigation. The company should make clear whether the investigation is being conducted by outside counsel, company employees, or other advisors such as an accounting firm – and it should also make clear to whom they report, whether it be the audit committee, management, the general counsel, or someone else. We will also want to know if anyone is walled off from the investigation, and which individuals, if any, are known to be represented by counsel.
During these initial conversations, a company and its advisors should also be prepared to address the nature, scope, and status of the investigation they are undertaking, as well as what investigative steps they plan to undertake, including what countries, locations, and conduct are being looked at. As we have said before, we do not expect companies to “boil the ocean.” It serves neither the company nor the government to blindly engage in a widespread investigation simply for the sake of thoroughness. Rather, we expect companies to think strategically about the alleged misconduct that was uncovered, and tailor the resulting investigation accordingly. If a company cannot provide a rational explanation for the scope of the investigation with respect to the allegations, then there is a good chance that the scope is either too narrow or too broad.
We also expect a company to explain what steps it is taking to preserve and collect potentially relevant evidence, including electronic devices and communications. To the extent a company is encountering problems locating, preserving, or collecting information, those issues should be brought to our attention.
Another key piece of information that a company can provide is the list of individuals who have already been interviewed, those who may be interviewed in the future, and those who have already been told about the allegations, including third parties. This allows the government to understand who is already aware of the investigation, and who may soon become aware of it. It also gives the government an opportunity to de-conflict with respect to its own investigation to ensure that the company’s internal investigation does not undercut or impede the government’s investigation. Similarly, we expect that companies and their counsel will be cognizant and cautious of the materials they show to employees. In particular, we expect that a company will not expose an individual to any documents that individual may not have seen before, thereby potentially tainting that individual’s knowledge.
But the most important thing that a company can provide is a regular and consistent flow of information. This flow of information may take different forms, but it must happen. Department prosecutors may very well want to set a schedule for regular updates and document productions, but a significant aspect of cooperation is maintaining an open line of communication. If a company unearths a significant fact and is not scheduled to meet with our prosecutors for several weeks, we want you to pick up the phone and let us know what you found, not sit on the information and wait until the next scheduled meeting. By engaging with our prosecutors early and often, our investigation will proceed more smoothly and, hopefully, more quickly than it would otherwise. Our goal, after all, is to move our investigations and resolve cases as quickly as reasonably and responsibly possible – a goal that I think everyone in this room would share.
Finally, we expect a company to tell us if there is something it cannot tell us. We realize there may be issues with privilege, data privacy, blocking statutes, and the like, but if there is potentially relevant information that the company is choosing not to provide to us for whatever reason, we want to know it. Simply because a company does not provide this information to us does not mean that the company will be docked cooperation credit, but a company risks losing cooperation credit if it does not tell us that this information exists.
Pursuing fair and equitable outcomes also entails working toward a resolution that avoids punishment that exceeds what is necessary to rectify the harm and deter future violations, particularly when a company faces a combination of criminal penalties along with civil or foreign penalties. In the Criminal Division, we have been long committed to reaching such coordinated resolutions with domestic and foreign authorities where appropriate. And in May of this year, Deputy Attorney General Rod Rosenstein announced a Department-wide policy, which reaffirmed that commitment.
Taking into account enforcement actions by other domestic or foreign agencies can take several forms in our resolutions. Most obviously, it could entail crediting a criminal penalty against penalties owed to other domestic or foreign authorities for the same misconduct. It could entail considering the fact that a company is subject to a foreign investigation, which was a factor we recently considered in declining to prosecute a U.K. company called Gurlap Systems for FCPA violations. Or, it could entail taking into account the fact that an overseas company would be subject to ongoing monitoring by its government, which was a factor we considered in the Société Générale and Petrobras cases in determining that monitors were not warranted.
Our commitment to appropriately resolving matters was further demonstrated about two weeks ago, when Assistant Attorney General Brian Benczkowski issued a memorandum to Criminal Division personnel announcing a Division-wide policy concerning monitorships.
The memorandum supplements and clarifies the guidance contained in a March 2008 memorandum on corporate monitors authored by then-Acting Deputy Attorney General Craig Morford, which is applicable across the Department. I will not mention all the details of the new memorandum, which is available on the Fraud Section website, but there are a few points I want to highlight.
The new Criminal Division policy emphasizes that the imposition of a monitor is never meant to be punitive; the purpose of a monitor is to help ensure that the past misconduct does not reoccur in the future. When appropriate, a monitor can serve important benefits to the corporation, including its employees and shareholders, and to the public, by reducing the risk of misconduct going forward. The policy further recognizes – consistent with past practices – that a monitor will not be necessary in many corporate criminal resolutions, and the scope of any monitorship should be tailored to address the specific issues and concerns that gave rise to the need for the monitor.
The policy also provides additional guidance for prosecutors when assessing the need for a monitor. In considering the potential benefits for the corporation and the public, Criminal Division prosecutors should assess: (a) whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of inadequate internal controls and compliance programs; (b) the pervasiveness of the misconduct and the involvement of senior management; (c) whether the corporation has made significant improvements to its corporate compliance program and internal controls; and (d) whether remedial improvements have been tested to demonstrate they would prevent or detect similar misconduct in the future. Criminal Division prosecutors also should consider whether the misconduct took place under different corporate leadership or in a compliance environment that no longer exists, and whether the changes in leadership and the corporate culture adequately safeguard against a recurrence of the misconduct.
Further, when weighing the benefits and costs of a monitorship, Criminal Division prosecutors should consider the projected monetary burden on the business, as well as whether the proposed scope of the monitorship is appropriately tailored to avoid unnecessary burdens to a company’s operations.
Assistant Attorney General Benczkowski also announced measures to ensure that our prosecutors have the proper foundation to assess these considerations, and to evaluate a company’s compliance program. This will be accomplished in two ways.
First, we will be looking to hire not just attorneys with experience as prosecutors and in the courtroom, but attorneys who have experience in compliance matters. Second, we will be instituting targeted compliance training for all Criminal Division components and prosecutors who are involved in corporate enforcement actions.
These measures will ensure that our prosecutors who are engaged in corporate enforcement are equipped to understand and properly evaluate a company’s compliance program, both at the time of the misconduct and at the time of the resolution. While we already have many attorneys who are well versed in compliance issues, we want to deepen our bench, not just for today, but for many years to come.
The Assistant Attorney General’s memorandum also addresses the monitor selection process. The make-up of the Criminal Division’s Standing Committee for monitor selection has been altered slightly. Going forward, the Fraud Section Chief will no longer serve on the Standing Committee for non-Fraud Section monitorships. Instead, the Chief of the Section which is prosecuting the case will serve on the Committee. This is a logical change. While the majority of our corporate monitor cases involve the Fraud Section, other Sections, such as MLARS, also handle cases involving monitors.
Additionally, the Criminal Division policy addresses potential monitor conflicts. As has been the general practice for the past few years, each monitor candidate must provide a written certification stating that he or she has notified of the monitorship nomination any clients that the attorney represents in matters involving the Criminal Division Section, or any other Department component, handling the monitor selection process, and also confirming that the candidate has obtained a waiver from those clients or has withdrawn as counsel in the other matters.
Once a monitor candidate has been identified by the Standing Committee, the Committee recommendation will be reviewed and considered by the Assistant Attorney General, and then subject to final approval by the Office of the Deputy Attorney General. After a candidate has been accepted, the attorneys handling the matter will notify the company, which will then notify the monitor candidates of the decision.
We believe that this Criminal Division policy will provide greater clarity and guidance, not just for our prosecutors, but also for companies involved in enforcement actions and the public we serve.
As corporate crimes continue to grow in complexity, effective enforcement requires strong relationships among enforcement authorities, at home and abroad, and law-abiding businesses. The Criminal Division is committed to reinforcing its relationships with good corporate citizens.
That is why we are working toward greater transparency in our enforcement principles and rewarding companies who try in good faith to detect and deter crime, by developing corporate compliance programs that help to prevent problems in the first instance, and reporting and assisting in investigations when misconduct occurs.
Most American companies are serious about engaging in lawful business practices, and are committed to doing the right thing. Those companies need and deserve support from the Department to help protect them and the public from corrupt employees and agents who seek to break the law.
Thank you for inviting me today, and enjoy the rest of the conference.