The United States Justice Department is rolling out a new policy aimed at pushing the cost of corporate crime into the pockets of executives, the latest in a series of changes at the agency under President Joe Biden.
The agency’s criminal division will give discounts on fines for companies that seek to claw back compensation from corporate wrongdoers, Deputy Attorney General Lisa Monaco said at a conference on Thursday. Any company seeking to resolve a US investigation will also have to implement a plan to include compliance goals as part of compensation and bonuses.
“Our goal is simple: to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in misconduct, onto those directly responsible,” Monaco said at an American Bar Association conference in Miami.
Companies often pay fines to US authorities to resolve investigations into wrongdoing, a practice some say further harms shareholders but leaves corporate executives unscathed.
“Clawbacks are not a new idea but our view is that they have never really been deployed effectively or regularly,” Marshall Miller, principal associate deputy attorney general at the Justice Department, told Reuters in an interview along the sidelines of the conference.
The three-year pilot program will give discounts tied to the size of the clawback on penalties and firms will get to retain a portion of that money even if they are unsuccessful in clawing back compensation, provided they try to do so in good faith, Miller said.
“If you are going to create a culture that calls out misconduct and promotes compliance, you need people to have skin in the game,” Miller said.
The Securities and Exchange Commission last year dramatically expanded the scope of its clawback powers, which were created in 2002.
Monaco’s “strong warning to ‘step up and own up’ is a clear shot across the bow of corporate America for non-disclosing companies,” said John Carney, co-leader of the White Collar, Investigations and Securities Enforcement and Litigation team at law firm BakerHostetler.
“Balancing the threat of prosecution with the allure of not seeking ‘a guilty plea from a corporation’ that comes forward could be the deciding factor in self reporting.”
National security implications
Monaco on Thursday also detailed a plan to dedicate more resources to corporate crime with national security implications.
The Justice Department will hire more than 25 new prosecutors to investigate sanctions evasion, export control violations and similar economic crimes, including a new position of chief counsel for corporate enforcement within the agency’s national security division.
The agency alongside the Treasury and Commerce Departments issued a warning to industry on complying with export controls and sanctions against Russia and Belarus.