United States: Individual Defense In The Shadow Of Corporate Guilty Pleas

Last Updated: March 7 2017
Article by Jessica K. Nall and Janice W. Reicher

Recent corporate guilty pleas can be expected to have serious implications for the individual executives and employees alleged to have been involved in the conduct under scrutiny. But there are other factors at play in such cases that can make even more of a difference to the eventual outcomes for individuals than whether their corporate employer pleads guilty or pursues an alternative resolution. Key among these is the extent to which a cooperative relationship can be established between company counsel and individual counsel despite accusations of individual wrongdoing.

In a post-Yates memo world where individuals should presume that the company has handed the government most or all of the incriminating or problematic evidence as to them, an individual's ability to timely access that same information to defend his or her case preindictment is of overwhelming significance. In criminal antitrust cases, for example, where corporate guilty pleas and "full cooperation" by companies against individuals are a fact of life, cooperation between counsel for the company and counsel for individuals under investigation is an accepted norm and helps facilitate both parties' efforts to resolve the government's investigation. Evaluating the possibilities for establishing such a relationship and accessing this key information is thus priority number one in defending individuals — no matter what eventual resolution a corporation may be expected to pursue.

Investigations of Individuals and Corporations in General

Broadly speaking, the road to a government resolution for both corporations and individuals is as follows: A company learns of criminal or otherwise problematic activity via whistleblowers or other means. Faced with allegations of wrongdoing within its ranks, the company, its board of directors or a board committee, will hire outside counsel to conduct an internal investigation. Depending on the scope, these investigations generally include reviewing a subset of company documents, interviewing employee witnesses, and presenting the investigation findings and recommendations to the company's board or management.

If the government, whether the U.S. Department of Justice, the U.S. Securities and Exchange Commission or other regulatory agency, is also investigating the company, the company will often pledge cooperation and investigative counsel will share their findings with the government in order to negotiate a more favorable outcome for the company. In many cases, the company — without admitting or denying guilt — will enter into a settlement agreement (whether a nonprosecution or deferred prosecution agreement) that includes a fine and other terms for remediation and future compliance with the law. In rarer cases, despite efforts to cooperate and allay such a result, a corporation may face the difficult prospect of entering a corporate guilty plea.

Meanwhile, the conduct of certain individuals who have become the focus of government investigators (either through the company's own disclosures or by other means) will necessitate that separate counsel be hired to protect those individuals' interests. Individual counsel are typically paid by the company pursuant to indemnity obligations and also based on the company's interests in avoiding or minimizing its own liability (including civil liability) by ensuring that its executives and employees are adequately represented in a criminal investigation and/or prosecution. In almost every case, the company has a strong interest in advancing fees for such counsel (sometimes on limited terms) rather than to allow individuals to navigate the investigative process without counsel and risk increasing the scope of liability for the company through incorrect or overbroad admissions of wrongdoing.

Though basic ethical tenets prevent the company from attempting to influence strategic decision-making by separate counsel in the representation of individuals, provision of defense costs often puts company counsel in the position of being able to recommend counsel and thus influence the selection of counsel to some degree. Provision of defense costs and referrals to individual counsel can at least place the individual and company on more conciliatory footing than denying defense costs and leaving individuals "out in the cold" to make potentially unfounded admissions that will ultimately redound to the company.

Provision of defense costs is a threshold issue; provision of access to key information regarding the individual's alleged conduct is even more determinative of eventual outcomes for individuals. In the typical criminal antitrust cartel case, for example, it is commonplace for a company (even one facing the prospect of a guilty plea) to share access to relevant documents with individual counsel, coordinate with individual counsel to obtain information needed in an internal or government investigation, and to share information on developments in the government's investigation. Though the interests of the individual and the company are often (at least somewhat) aligned during this process, this alignment generally ends where, for example, the company pleads guilty while the individual asserts his or her innocence. At that point, joint defense or common interest arrangements may shift, but a cooperative relationship between counsel will still be helpful to both parties as they face the government as a mutual adversary.

Impacts to Individuals of Corporate Guilty Pleas

On Jan. 11, 2017, Volkswagen plead guilty to conspiring to defraud the United States and consumers, and to Clean Air Act violations. The company had installed defeat devices into thousands of vehicles with the intent to circumvent U.S. regulations. In addition to paying $4.3 billion in criminal and civil penalties and undergoing corporate compliance monitoring, Volkswagen agreed to cooperate fully with the Justice Department's ongoing investigation and prosecution of individual wrongdoers. That same day, the Justice Department charged six Volkswagen executives with one count of conspiracy to defraud the United States and consumers, and to violate the Clean Air Act, all by making false statements to regulators and the public. On Jan. 13, in another case, automobile parts manufacturer Takata agreed to plead guilty to wire fraud charges and pay a $1 billion criminal fine for fabricating test results to disguise a defect in the company's airbags. The Justice Department also announced criminal charges against three Takata executives allegedly involved in the fraud.

As these cases demonstrate, investigation and prosecution of a corporation and potentially responsible individuals usually goes hand-in-hand. Where the company has already plead or announced the intention to plead guilty to one or more crimes, counsel for the individuals must determine how best to defend their clients in the shadow of their corporate employer's criminal admissions. Attendant publicity may motivate companies pleading guilty to take positions opposed to their individuals in the press or in their government negotiations. And it goes without saying that individuals whose corporate employers have plead guilty may not be as able to pursue fact-based defenses resting on presumptions of innocence. They can and should expect instead that the government has already heard from their corporate employer that a crime has been committed and the individuals at issue have committed it.

Whether or not a company pleads guilty, in any case where a company seeks cooperation credit from investigators, individuals involved in the conduct at issue must assume that the company will turn over all relevant facts about their conduct and that it may not permit or invite any kind of cooperative relationship with company counsel. This likely means a company will have turned over an individual employee's emails, notes and other evidence containing the facts of his or her involvement to the government, but not the individual. Even when materials are provided through counsel, individuals typically only receive access to the evidence pertaining to him or her, which may preclude a comprehensive understanding of the evidence and (in some cases intentionally) impacts individuals' ability to cooperate as to others that also may have been involved. Aside from making "corporate bloodletting" and the strategic provision of information as to certain individuals potentially more likely, a corporate guilty plea does not fundamentally change these realities for the individual defendant.

That said, some aspects of an individual's defense may become tougher once a corporate employer pleads guilty. For one, it may become more difficult for an individual's counsel to challenge the prosecutor's view of the individual's culpability after a corporate guilty plea. The company's admissions (which will necessarily involve admissions as to individual conduct, as entities cannot act alone) will only bolster the government's theory of the evidence involving individuals, and the government may pursue individuals more forcefully and seek more severe consequences where the entity has already admitted criminal guilt. In some cases, a company's willingness to cooperate with individual counsel may decrease once the entity has admitted guilt. Once a corporate guilty plea has been entered, civil liability based on individual conduct is a foregone conclusion and the company may perceive less benefit in facilitating an individual's ability to defend. In some but not all cases, a corporate guilty plea may be expected to shift the relationship dynamic with individuals, especially if the parties' interests diverge.

Cooperative Relationship Between Counsel is a Key Driver for Success

To understand the impact of corporate guilty pleas on individual defense, it is helpful to look to the analogous paradigm of criminal antitrust cases, in which corporate guilty pleas are the norm. One of the key drivers for individual success in defending criminal antitrust cases has always been the degree of cooperation that exists between company and individual counsel.

In recent years, outside of the antitrust context, companies accused of wrongdoing have generally been permitted to resolve criminal investigations without pleading guilty, instead entering into deferred and nonprosecution agreements despite paying large fines and penalties for conduct that could arguably form the basis for a criminal plea. Corporate guilty pleas like those of Volkswagen and Takata thus might seem like a rarity. In the criminal antitrust context, by contrast, corporate guilty pleas have long been commonplace for companies that fail to report their crimes through the DOJ's leniency program, which provides full immunity for companies and their employees when the company is the first to self-report. In antitrust cases, where joint defense arrangements are common despite the near-certainty of corporate guilty pleas, individuals have at least a fighting chance to evaluate defense options and explore the possibility of cooperation with the government themselves.

In a general criminal case involving allegations of corporate wrongdoing, the degree to which a cooperative footing may be established between company and individual counsel is variable. Whether and how much a company is willing to cooperate with individual counsel may depend on many factors, including publicity and the degree to which taking an adverse position vis-à-vis certain individuals may provide an actual or perceived benefit to the company's own government negotiations.

Corporate Cooperation Since the Yates Memo: Individuals In the Hot Seat

From the company's standpoint, whether faced with an antitrust or other regulatory or criminal investigation, cooperation with the government is often the best — indeed, the only — option for mitigating any negative consequences. The trend toward requiring "full" corporate cooperation with the government in order to obtain leniency outside of the antitrust context picked up momentum when the DOJ released the Yates memorandum in September 2015. Though an updated memorandum can be expected from the new administration, it is almost certain that the government will continue to view favorably and reward corporate cooperation.

Under the Yates memo, which remains in effect, corporate cooperation with the government is all or nothing. The company must provide all relevant facts and cannot "cherry pick" what it reports to investigators. Significantly, the Yates memo requires companies to provide all facts relating to the conduct of all accountable individuals in order to qualify for cooperation credit. As former Deputy Attorney General Sally Yates herself noted in May 2016, in response to the Yates memo companies have begun to provide government investigators with so-called "Yates binders" containing evidence related to the conduct of particular individuals. As she explained, the presumption of what a corporate resolution looks like has shifted: DOJ attorneys must now get approval if they decide not to bring charges against individuals and may not release individuals from civil or criminal liability except under the rarest of circumstances. The all-or-nothing cooperation paradigm that the Yates Memo has set up, in essence, requires the company to act as a proxy for government investigators if it wishes to obtain cooperation credit.

All of this means that an individual executive or employee at a company under criminal investigation, without information to the contrary, must proceed on the presumption that the government has received from the company negative and/or potentially incriminating evidence as to him or her. This creates a unique predicament for executives under investigation for corporate crime. In most other criminal contexts (aside from antitrust prosecutions), it is rare that the government has access to all potentially incriminating evidence regarding an individual's role in an alleged crime. And it is certainly not typical for that evidence to be turned over to the government in a neatly organized binder.

In addition to the obligation to cooperate per the Yates memo are the interests companies may have (or believe they have) in supporting the government's investigation as to certain individuals over others as a form of "corporate bloodletting." Although technically not favored under Yates, it would not be surprising to hear of companies providing a subtly greater degree of cooperation as to certain individual suspected wrongdoers over others. By the same token, government investigators may themselves attempt to influence the process of corporate cooperation with certain individuals in order to facilitate their own investigations in certain respects. This can result in some individuals being on a cooperative footing with counsel for the company and some being left "out in the cold."

Access to Information More Important Than Form of Corporate Resolution

In a very real sense then, whether the company (through counsel), stands on a cooperative footing with an individual suspected of wrongdoing and provides timely access to key information may be more important to an individual's prospects for success against the government than whether the company pursues a guilty plea over some other form of resolution. Individuals themselves often have a strong incentive to cooperate with the government's investigation. For some, they may wish to clearly identify their role or lack thereof in the conduct at issue. For others, taking responsibility for wrongdoing and providing full disclosure of their own and others' involvement in return for cooperation credit or even simply leniency may be an option for mitigating potential negative consequences. As a practical matter, however, cooperation becomes more difficult — if not impossible — for individuals who are not granted timely access to "Yates binder"-like materials.

A corporation's level of cooperation with both the government and accused individuals can make significant differences in individual's ability to defend themselves. For the individual under investigation, one thing remains certain as long as the Yates memo remains in effect: Whether or not the company pleads guilty, the individual must assume that a corporation under investigation will have provided the government with some or all facts regarding an individual's participation in the conduct. Whether the individual will timely receive the same materials to permit them to defend against the government is another question. The answer to that question, which depends on a myriad of factors, may be more significant than the ultimate form of the corporate resolution.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions