United States: DOJ Announces Policy To Increase Focus On Individuals Involved In Corporate Wrongdoing

Last Updated: September 24 2015
Article by Andrews Kurth LLP

The U.S. Department of Justice (DOJ) announced a new set of policy guidelines designed to dramatically increase the focus of prosecutors and investigators on individuals potentially involved in corporate wrongdoing. The "Yates memo," as it will likely be called at the DOJ because it was written and announced by Deputy Attorney General Sally Quillen Yates, sets forth standards for all DOJ attorneys (including prosecutors in the U.S. Attorneys' offices nationwide) to follow in order to ensure that "not just corporate entities, but also the individuals through which these corporations act" are held responsible for corporate malfeasance. These guidelines will apply to all future investigations of corporate wrongdoing and, where practicable, to matters pending as of September 9, 2015.

Memorandum Highlights

To obtain any valuable cooperation credit, companies must identify and provide all relevant information on any and all individuals "involved in or responsible for the misconduct at issue, regardless of their position, status or seniority." As Deputy Attorney General Yates indicated, "It's all or nothing. No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn't include information about individuals." She further indicated that corporate plea and settlement agreements will now include a provision that requires companies to continue providing relevant information about any implicated individuals post-settlement. Companies that fail to provide such continuing cooperation will be in material breach of their settlement agreement resulting in possible revocation of the agreement or stipulated penalties. These standards extend to civil investigations and to False Claims Act cases. Thus, businesses interested in obtaining cooperation credit from the DOJ are now under a much broader obligation to disclose information concerning involved employees and to do so on an ongoing, nearly open-ended basis.

The guidelines also require that DOJ attorneys "focus on individuals from the inception of the investigation." This focus extends to civil investigations where prosecutors will no longer decide whether or not to initiate civil investigations based upon the solvency of the entities or individuals; but rather, the seriousness and importance of the conduct will take center stage in that decision. DAG Yates commented that individual criminal convictions and civil judgments will "become part of the corporate wrongdoers' resumes that will follow them throughout their careers. And by holding individuals accountable, we can change corporate culture to appropriately recognize the full costs of wrongdoing, rather than treating liability as a cost of doing business - a change that will protect public resources over the long term."

The memorandum also directs civil and criminal DOJ attorneys to routinely coordinate their respective efforts to allow for consideration of the full range of potential criminal and civil remedies against an individual. Thus, we expect far more parallel investigations and prosecutions to take place in the near future, making it even more crucial now for counsel to understand the past, present and future scope of any civil investigative efforts.

Finally, the Yates memo signals an effort to end the practice of using corporate settlements to exonerate or shield executives and employees from liability or prosecution. DOJ attorneys may now resolve matters with a company only where they have a "clear plan to resolve related individual cases" and, even so, may not allow corporate settlements to release, or provide immunity to, individual officers or employees from civil or criminal liability, absent extraordinary circumstances and supervisory approval.

Practical Considerations

While the Yates memo sets forth policy guidelines that govern all federal investigations, the ultimate impact of the memorandum will play out over time as DOJ attorneys interpret and implement them. However, the guidelines could dramatically alter a number of issues important to corporate governance: whether and how companies cooperate with the DOJ, whether employees will cooperate in a company's internal investigation and whether a given employee should have independent counsel during an internal investigation (especially if that employee requests an attorney).

The removal of partial cooperation credit makes the cooperation decision all or nothing, and the bar has been raised as far as what constitutes sufficient cooperation. Companies seeking a settlement will need to "point the finger" at their own employees and consider at the outset of the internal investigation the possibility of whether the alleged misconduct is criminal. Such companies may face more expensive and longer internal investigations to ensure that they provide all relevant information on employees potentially responsible for the alleged misconduct, both before and after any settlement, and to address all potential criminal and civil cases. Other companies may decide to forego cooperation and settlements over concerns that the information provided is deemed not to be sufficient by the DOJ or the cost of settling is protracted litigation against employees and continued time and expense providing cooperation against employees. These concerns could result in fewer cases of corporate self-reporting.

The policy guidelines illustrate the importance of having a robust corporate compliance program to mitigate the chances of misconduct. The DOJ, SEC and UK's Serious Fraud Office have provided some insights on what constitutes a robust compliance program. For example, a mere paper program is insufficient. A program must, among other things, be fulsome, have assigned responsibility for oversight, be provided adequate resources, communicated throughout the organization (for example, periodic training and certification), enforced and modified or updated as necessary. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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