As part of the United States growing efforts to crack down on corporate crime and other white-collar criminal exploits, the U.S. Justice Department (DOJ) recently announced the creation of a groundbreaking program that could be bad news for financial executives. Global RADAR has long-chronicled the phenomenon that has seen many of world’s largest financial institutions failing to adequately carry out their due diligence and AML requirements, choosing to take financial penalties for their non-compliance in stride rather than restructuring and strengthening their deficiencies in this regard. With many large-scale institutions having the luxury of treating multi-million dollar fines as simply the cost of doing business, this has allowed the very executives allowing these transgressions to occur to emerge relatively unscathed – at least from a financial perspective. It appears however that these individuals may not be resting on their laurels for much longer.

            In remarks delivered at the American Bar Association National institute on White Collar Crime on March 2^nd, Deputy Attorney General Lisa Monaco discussed the DOJ’s decision to initiate the pilot program which will encourage financial firms to continue investing in compliance and “good corporate citizenship” while also empowering prosecutors to hold those engaging in wrongdoing or unethical activities more accountable. The program will reportedly center on rewarding good behavior by executives and punishing those who are connected to criminal activity. The new policy also boasts an innovative approach to compensation with respect to fines for non-compliance – with two key points brought forth by Monaco during her proclamation. The first point will see every corporate resolution now include a requirement that the resolving company develop compliance-promoting criteria and goals which will be directly tied into its compensation and bonus system, while the second would allow the DOJ’s Criminal Division to provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers.¹ Furthermore, companies that try but fail to recoup said compensation may still be eligible for potential credit under the new policy. Essentially, the agency’s criminal division will provide “discounts” on fines for firms seeking compensation from the wrongdoers found under their very roofs.

            In the past, corporate executives were able to hide behind their respective entities to shield themselves from punishment, regardless of how significant the compliance shortcoming ultimately was. This is in part due to a lack of federal legislation governing this specific piece of the AML pie. The U.S. Securities and Exchange Commission (SEC) does have the ability to force chief executives and financial officers to return bonuses/incentive pay when their companies break the rules. However this has to date been a standalone policy, and one that usually only amounts to a simple slap on the wrist to those in high-paying positions. The new initiative will seek to expand the rules regarding clawbacks which should allow for more effective and consistent practices among a larger suite of domestic financial service providers. The pilot program shows a willingness on the Justice Department’s behalf to continue its efforts to both expand and fine-tune the AML movement with out-of-the-box ideas that should bring about more successful enforcement actions. In this case, the DOJ provides yet another opportunity for American financial institutions to police themselves, reducing the burden placed on regulators and law enforcement bodies, all while upping the ante against individuals who were previously untouchable by hitting them where it actually hurts: their personal bank accounts.³ “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,”¹ Ms. Monaco said.

            In addition to the above-mentioned principles of the program, there is also a boost provided for voluntary self-disclosure of potential wrongdoing for both individuals and institutions alike. Unlike the negligent and/or complicit executives who the program’s primary objectives target, those who report suspicious activity will get to keep their bonuses as well as add-on pay while effectively being exempted from clawbacks. The thinking here is that even if corporate execs do not care enough about doing the right thing on a personal level to come forward, they can still be incentivized to divulge certain key information as a means of avoidance of personal penalties. The intention behind the latest move is to use compensation systems to drive conduct.  Monaco sums this up best by adding, “Nothing grabs attention or demands personal investment like having skin in the game through direct and tangible financial incentives.”¹

            Amongst other talking points at the commission were plans to dedicate more resources to corporate crime with national security implications. The Justice Department will reportedly 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.² Big changes are on the horizon in the realm of regulatory compliance, and all financial entities and their employees should be preparing themselves adequately to meet these new demands.

Citations

1. “Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime.” The United States Department of Justice, 2 Mar. 2023. 
2. Prentice, Chris, and Karen Freifeld. “US Justice Dept Wants Execs to Foot Bill for Corporate Misconduct.” Reuters, Thomson Reuters, 2 Mar. 2023. 
3. Tokar, Dylan. “Justice Department Seeks to Spread the Pain of Corporate Fines to Executives at Fault.” The Wall Street Journal, Dow Jones & Company, 2 Mar. 2023.