U.S. DOJ Issues New Policy on Voluntary Self-Disclosure and Environmental Crimes

Potential Benefits of Disclosure. The VSD Policy provides that where the standards below are met and where there are not aggravating or disqualifying factors (as explained below), ECS will not seek a guilty plea, provided that the disclosing company has fully cooperated with DOJ and remediated the misconduct. Additionally, ECS will not require the imposition of an independent compliance monitor if those factors are met plus the company shows that it has an effective compliance program. If any aggravating or disqualifying factors are present, ECS may pursue a guilty plea but may reduce the number and type of charges or recommend a lenient sanction.

Standards for Disclosure. The VSD Policy enumerates six criteria that must be met in order to receive credit.

1. Voluntary. The disclosure must be made voluntarily by the company and not otherwise required to be reported to the government, or made by another party (e.g., whistleblower).
2. Timing. The disclosure must be made prior to an imminent threat of disclosure or government investigation, prior to the misconduct’s otherwise being publicly disclosed or otherwise known to the government, and promptly.
3. Disclosure Made to DOJ. The disclosure must be made to ECS and/or to the U.S. Attorney’s Office in the district where misconduct occurred. A disclosure made to another governmental entity, such as a federal regulatory agency or state government, would not suffice, with the exception that a disclosure made to ECS within seven days of disclosure to another governmental entity will be considered simultaneous.
4. Method of Discovery. The VSD Policy favors disclosures made through a company’s internal ethics and compliance programs, affording those a “significant benefit.”
5. Substance of Disclosure. The disclosure must include all relevant facts concerning the misconduct and individuals involved, to the extent known at the time of the disclosure. ECS expects companies to make a disclosure when it has sufficient information based on a preliminary investigation or assessment, with timely factual updates to follow.
6. Acquisitions. An acquiring company may make a disclosure for an acquired entity under the VSD Policy provided that the company fully cooperates and makes a complete disclosure as it relates to the transaction.

Aggravating and Disqualifying Factors. The VSD Policy lists factors that may warrant either a guilty plea or prosecution notwithstanding a disclosure:

1. Environmental Impact. The misconduct posed a threat of serious adverse impact to public health or the environment.
2. Endangerment. The misconduct involved knowing endangerment of, serious injury to, or death to any individual.
3. Pervasive. The misconduct was deeply pervasive throughout the company, which includes considering the duration of misconduct, number of potential violations, and the number of individuals involved, among other factors.
4. Concealment. The misconduct involved senior management’s attempting to conceal the misconduct or obstruct justice.
5. Lack of Cooperation. The misconduct was followed by a lack of full cooperation, which requires identifying all individuals substantially involved in the misconduct and providing all the relevant facts to DOJ.
6. Failure to Remediate. The misconduct was followed by a lack of timely or appropriate remediation, which may include remediating environmental harm, disgorgement of financial gain, restitution of any victims, and potentially disciplinary action against responsible personnel.

Practical Considerations. The VSD Policy raises several issues that companies, boards, and investors may wish to consider for industry sectors facing significant environmental regulation. Here are a few of those issues.

• First, the VSD Policy highlights the importance of robust compliance programs as a risk mitigant for criminal exposure, including an adequate corporate structure to detect and remediate potential noncompliance on a proactive basis. In a recent podcast, Todd Kim, the Assistant Attorney General for ENRD, expounded on some of these issues. 
• Second, the new VSD Policy adds another layer of complexity on the question of whether to self-disclose to DOJ potential criminal violations, particularly when DOJ has already issued several new policies that may overlap and in some cases differ. 
• Third, the applicability of the VSD Policy can be difficult to determine when the line between civil violations and criminal charges can be gray for a particular issues, particularly where federal environmental statutes may impose lesser mens rea standards, such as criminal liability for “negligent” discharges and releases.

For potential civil violations, the Environmental Protection Agency maintains a policy on Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, which aims to encourage self-disclosure of civil violations, as discussed in this recent Sidley blog post.