DOJ and SEC Stick Stericycle with a Two-Year Monitorship, Despite Acknowledgment of Extensive Remedial Measures

U.S. authorities acknowledged Stericycle undertook significant remedial measures to improve its compliance environment, but determined a monitor was necessary because the improvements had not yet been sufficiently implemented or tested to prove their efficacy.

The Scheme: Chocolates and Cookies Are Code for a Whole Load of Bribes

According to the DOJ and SEC filings, Stericycle conspired to corruptly offer and pay approximately $10.5 million in bribes to foreign officials in Argentina, Brazil, and Mexico to obtain and retain business. Stericycle entered into a three-year deferred prosecution agreement (“DPA”) with the DOJ, in which it admitted the charged conduct, and an administrative settlement with the SEC.

The bribery scheme permeated all levels of Stericycle’s operations, including several high-level executives who authorized the bribe payments. Lower-level employees tendered the bribe payments (often in cash), which were calculated as a percentage of underlying contract payments. The bribe payments were tracked through spreadsheets using code names such as “CP” (commission payments), “IP” (incentive payments), “little pieces of chocolate,” and “alfajores” (a popular Argentinian cookie). Stericycle executives in both Latin America and the United States reviewed and approved these spreadsheets documenting the illicit payments. Stericycle was also charged under books and records provisions for falsely recording the bribe payments as legitimate expenses and making falsified certifications required under the Sarbanes–Oxley Act of 2002. The scheme lasted from 2011 until 2016 and earned Stericycle approximately $21.5 million in profits.

The Resolution: “Extensive” Remedial Measures Only Get You So Far

In addition to the two-year compliance monitorship, Stericycle will be required to pay a $52.5 million criminal penalty, calculated under the federal sentencing guidelines with a 25% discount to acknowledge the company’s full cooperation in the investigation. A full 50% discount is available under the DOJ’s FCPA Corporate Enforcement Policy to companies that not only cooperate, but also timely and voluntarily self-disclose the conduct at issue; but Stericycle failed to voluntarily self-disclose. It will also pay $28.2 million in disgorgement and interest to the SEC, with an available offset for timely payments made to the Brazilian government as part of the company’s separate resolution in Latin America.

The Stericycle resolution cites a number of factors, including the company’s failure to voluntarily and timely disclose the above-mentioned conduct and the nature, seriousness, and pervasiveness of the scheme. While Stericycle received full credit for its cooperation with the investigations and for engaging in “extensive” remedial measures, the DOJ stated that a monitorship was nevertheless necessary because Stericycle had not fully implemented or tested its compliance program.

Stericycle’s credited remedial measures included (1) conducting its own internal investigation; (2) appointing new executive leadership and board members; (3) hiring an experienced chief ethics and compliance officer; (4) updating its code of conduct and internal controls; (5) enhancing its internal reporting, investigations, and risk assessment processes; (6) terminating employees involved in the relevant conduct; and (7) divesting its subsidiaries in Argentina and Mexico. The imposition of a monitor may have come as a surprise given these efforts, but it tracks with the Biden administration’s commitment to using monitors to combat corporate crime. In an October 2021 speech at the American Bar Association’s National Institute on White Collar Crime, Deputy Attorney General (“DAG”) Lisa O. Monaco remarked that “there is no default presumption against corporate monitors. That decision about a monitor will be made by the facts and circumstances of each case.” This is a significant departure from the Trump administration’s approach, which favored pursuing monitorships “only where there [was] a demonstrated need for, and clear benefit to be derived from, a monitorship relative to the projected costs and burdens.”

What This Means for You

Companies should note that the DOJ is making good on the policies outlined by DAG Monaco, including the imposition of monitorships “[w]here a corporation’s compliance program and controls are untested, ineffective, inadequately resourced, or not fully implemented at the time of a resolution.” It is also worth reiterating that monitorships often result in significant on-going costs given a monitor’s broad authority to oversee corporate compliance efforts. To avoid the imposition of a monitor, companies cannot rely solely on the creation of a compliance program or other remedial measures in response to an investigation by the DOJ or the SEC. Companies need to prioritize proactively formulating a robust compliance program, ensuring the program is properly resourced, and testing and updating the program as necessary. These types of up-front actions are critical to demonstrate in discussions with the DOJ and the SEC that the compliance program is actually effective — rather than in a relative stage of infancy or repair. Otherwise it seems the current administration is likely to liberally employ monitors to test that efficacy for themselves.