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DOJ's Monaco Memo and Its Impact on SEC's Approach to Corporate Recidivism

Introduction

The Department of Justice (DOJ) recently issued a memorandum, commonly referred to as the "Monaco Memo," which outlines the DOJ's approach to corporate criminal conduct, particularly focusing on a corporation's history of misconduct. This memo has far-reaching implications, not just for the DOJ but also for the Securities and Exchange Commission (SEC). This article delves into how the Monaco Memo is influencing the SEC's approach to corporate recidivism.

The Monaco Memo: A Brief Overview

The Monaco Memo, released in September, emphasizes the importance of a corporation's history of misconduct when resolving current charges. It notes that recidivism could be a sign of a flawed compliance culture within a corporation. Deputy Attorney General Lisa Monaco further underscored this point, stating that corporations should no longer view criminal resolutions as merely a cost of doing business.

SEC's Stance on Corporate Recidivism

While the SEC has not officially adopted the principles of the Monaco Memo, there are strong indications that it is moving in a similar direction. The SEC’s Enforcement Manual advises staff to consider a corporation’s recidivist status during investigations. This is particularly important when weighing the investment of SEC resources against the gravity of the alleged offense.

Enforcement Implications

The SEC is also taking a tougher stance at the enforcement stage. Gurbir Grewal, the head of the SEC’s Enforcement Division, has warned that repeat offenders should expect harsher penalties. Prophylactic measures, such as officer and director bars, may also be more frequently employed in cases involving recidivists.

Policy Shifts and Recent Settlements

The SEC has reversed a Trump-era policy that allowed financial entities to submit settlement offers contingent on receiving so-called "bad actor" waivers. This change signals a more stringent approach, especially for recidivists. Recent settlements, such as the one with steel-pipe manufacturer Tenaris S.A., further illustrate the SEC's focus on recidivism.

Cooperation and Remediation

It's worth noting that the SEC, like the DOJ, values cooperation and remediation efforts by corporations. For instance, Tenaris received credit for its cooperation, which included providing translated documents and improving its internal accounting controls.

Conclusion

While the SEC has not explicitly incorporated the Monaco Memo into its enforcement strategy, it is clear that the principles of the memo are influencing the SEC's approach to corporate recidivism. Companies should be aware of this shift and take appropriate steps to bolster their compliance programs.