September has traditionally been an active month for Department of Justice policy statements and speeches.
Keeping this tradition alive, earlier this week DOJ Deputy Attorney General Sally Yates delivered this speech and released this memo titled “Individual Accountability for Corporate Wrongdoing” (hereafter the “Yates Memo”). (See here for the video of the speech).
While many will likely view the Yates Memo as articulating new DOJ policy it really does not.
Rather, the Yates Memo continues the DOJ’s rhetoric as to the importance of individual prosecutions and is substantively similar to this September 2014 speech delivered by then Principal Deputy Attorney General Marshall Miller and this September 2014 speech delivered by then Attorney General Eric Holder.
In any event, the Yates Memo has already attracted substantial press (see here, here and here for instance) and will no doubt be the focus of numerous law firm client alerts in the near future. The Yates Memo is the latest in a long-line of DOJ policy memos. (See here for the 1999 “Holder Memo,” here for 2003 “Thompson Memo,” here for the 2006 “McNulty Memo” and here for the 2008 “Filip Memo”).
The Yates Memo repeats the following DOJ rhetoric:
“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”
This is rhetoric because the reality is that few DOJ corporate enforcement actions result in any related charges against company employees. In the FCPA context, as noted in this prior post, between 2008-2014, 75% of DOJ corporate enforcement actions have not (at least yet) resulted in any DOJ charges against company employees.
The Yates Memo then states as follows.
“There are, however, many substantial challenges unique to pursuing individuals for corporate misdeeds. In large corporations, where responsibility can be diffuse and decisions are made at various levels, it can be difficult to determine if someone possessed the knowledge and criminal intent necessary to establish their guilt beyond a reasonable doubt. This is particularly true when determining the culpability of high-level executives, who may be insulated from the day-to-day activity in which the misconduct occurs. As a result, investigators often must reconstruct what happened based on a painstaking review of corporate documents, which can number in the millions, and which may be difficult to collect due to legal restrictions.
These challenges make it all the more important that the Department fully leverage its resources to identify culpable individuals al all levels in corporate cases. To address these challenges, the Department convened a working group of senior attorneys from Department components and the United States Attorney community with significant experience in this area. The working group examined how the Department approaches corporate investigations, and identified areas in which it can amend its policies and practices in order to most effectively pursue the individuals responsible for corporate wrongs. This memo is a product of the working group’s discussions.
The measures described in this memo arc steps that should be taken in any investigation of corporate misconduct. Some of these measures are new, while others reflect best practices that are already employed by many federal prosecutors. Fundamentally, this memo is designed to ensure that all attorneys across the Department are consistent in our best efforts to hold to account the individuals responsible for illegal corporate conduct.
The guidance in this memo will also apply to civil corporate matters. In addition to recovering assets, civil enforcement actions serve to redress misconduct and deter future wrongdoing. Thus, civil attorneys investigating corporate wrongdoing should maintain a focus on the responsible individuals, recognizing that holding them to account is an important part of protecting the public fisc in the long term.
The guidance in this memo reflects six key steps to strengthen our pursuit of individual corporate wrongdoing, some of which reflect policy shifts and each of which is described in greater detail below: (l) in order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct; (2) criminal and civil corporate investigations should focus on individuals from the inception of the investigation; (3) criminal and civil attorneys handling corporate investigations should be in routine communication with one another; ( 4) absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; (5) Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and (6) civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.”
The remainder of this post highlights specifics in the Yates Memo as to the above six topics and includes in italics portions of Yates’s speech relevant to the specific topic.
The Yates Memo states:
1. To be eligible for anv cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.
In order for a company to receive any consideration for cooperation under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the Department all relevant facts about individual misconduct. Companies cannot pick and choose what facts to disclose. That is, to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct. If a company seeking cooperation credit declines to learn of such facts or to provide the Department with complete factual information about individual wrongdoers, its cooperation will not be considered a mitigating factor pursuant to USAM 9-28.700 el seq. Once a company meets the threshold requirement of providing all relevant facts with respect to individuals, it will be eligible for consideration for cooperation credit. The extent of that cooperation credit will depend on all the various factors that have traditionally applied in making this assessment (e.g., the timeliness of the cooperation, the diligence, thoroughness, and speed of the internal investigation, the proactive nature of the cooperation, etc.).
This condition of cooperation applies equally to corporations seeking to cooperate in civil matters; a company under civil investigation must provide to the Dcpaiiment all relevant facts about individual misconduct in order to receive any consideration in the negotiation. For example, the Department’s position on “full cooperation” under the False Claims Act, 31 U.S.C. § 3729(a)(2), will be that, at a minimum, all relevant facts about responsible individuals must be provided.
The requirement that companies cooperate completely as to individuals, within the bounds of the law and legal privileges, see USAM 9-28.700 to 9-28.760, docs not mean that Department attorneys should wait for the company to deliver the information about individual wrongdoers and then merely accept what companies provide. To the contrary, Department attorneys should be proactivcly investigating individLtals at every step of the process – before, during, and after any corporate cooperation. Department attorneys should vigorously review any information provided by companies and compare it to the results of their own investigation, in order to best ensure that the information provided is indeed complete and docs not seek to minimize the behavior or role of any individual or group of individuals.
Department attorneys should strive to obtain from the company as much information as possible about responsible individuals before resolving the corporate case. But there may be instances where the company’s continued cooperation with respect to individuals will be necessary post-resolution. In these circumstances, the plea or settlement agreement should include a provision that requires the company to provide information about all culpable individuals and that is explicit enough so that a failure to provide the information results iu specific consequences, such as stipulated penalties and/or a material breach.”
In her speech, Yates stated:
“[T]o the average guy on the street, this might not sound like a big deal. But those of you active in the white-collar area will recognize it as a substantial shift from our prior practice. While we have long emphasized the importance of identifying culpable individuals, until now, companies could cooperate with the government by voluntarily disclosing improper corporate practices, but then stop short of identifying who engaged in the wrongdoing and what exactly they did. While the companies weren’t entitled to full credit for cooperation, they could still get credit for what they did do and that credit could be enough to avoid indictment.
The rules have just changed. Effective today, if a company wants any consideration for its cooperation, it must give up the individuals, no matter where they sit within the company. And we’re not going to let corporations plead ignorance. If they don’t know who is responsible, they will need to find out. If they want any cooperation credit, they will need to investigate and identify the responsible parties, then provide all non-privileged evidence implicating those individuals.
While this is new for the corporate world, there’s nothing radical about the concept. It’s the same rule we apply to cooperators in any other type of criminal investigation. A drug trafficker can decide to flip against his co-conspirators. He can proffer to the government the full scope of the criminal scheme. He can take the stand for the government and testify against a dozen street-level dealers. But if he has information about the cartel boss and declines to share it, we rip up his cooperation agreement and he serves his full sentence. The same is true here. A corporation should get no special treatment as a cooperator simply because the crimes took place behind a desk.
This new cooperation requirement does not mean that DOJ will sit back and wait for the company to deliver the information about individual wrongdoers and then merely accept what companies provide. To the contrary, department attorneys will be actively investigating individuals at every step of the process – before, during and after any corporate cooperation. Department attorneys will be vigorously testing information provided by companies and comparing it to the results of our own investigation to ensure that it is indeed complete and that it doesn’t seek to minimize the role of any one person or group of individuals.
Building on this point, a company should not assume that its cooperation ends as soon as it settles its case with the government. Going forward, corporate plea agreements and settlement agreements will include a provision that requires the companies to continue providing relevant information to the government about any individuals implicated in the wrongdoing. A company’s failure to continue cooperating against individuals will be considered a material breach of the agreement and grounds for revocation or stipulated penalties.
And one final note on this point. The purpose of this policy is to better identify responsible individuals, not to burden corporations with longer or more expensive internal investigations than necessary. We are not asking companies to “boil the ocean,” so to speak, and embark upon a multimillion-dollar investigation every time they learn about misconduct. We expect thorough investigations tailored to the scope of the wrongdoing. So for all the defense lawyers in the room – and I know there are plenty of you – keep this in mind. If you are representing a corporation and there’s a question about the scope of what’s required, you can do what many defense attorneys do now – pick up the phone and discuss it with the prosecutor.”
The Yates Memo states:
2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
Both criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct. By focusing on building cases against individual wrongdoers from the inception of an investigation, we accomplish multiple goals. First, we maximize our ability to ferret out the full extent of corporate misconduct. Because a corporation only acts through individuals, investigating the conduct of individuals is the most efficient and effective way to determine the facts and extent of any corporate misconduct. Second, by focusing our investigation on individuals, we can increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy. Third, by focusing on individuals from the very beginning of an investigation, we maximize the chances that the final resolution of an investigation uncovering the misconduct will include civil or criminal charges against not just the corporation but against culpable individuals as well.
In her speech, Yates stated:
“One of the things we have learned from experience is that it is extremely difficult to build a case against individuals, civil or criminal, unless we focus on individuals from the very beginning. For example, if an investigation starts as a civil inquiry into the company and interviews are conducted and documents gathered with a focus on corporate liability, it is often challenging for our attorneys to then go back at the conclusion of the civil matter and build a criminal case against individuals. This is particularly true not only because of the sheer passage of time, but also because individual criminal liability often hinges on proving a level of criminal intent much more demanding than what was required in the civil case.
To address this problem, the department yesterday instructed its attorneys that, going forward, they are to focus on individuals from the start of an investigation, regardless of whether the investigation begins civilly or criminally. Moreover, once a case is underway, the inquiry into individual misconduct can and should proceed in tandem with the broader corporate investigation. Delays in the corporate case will no longer suffice as a reason to delay pursuit of the individuals involved.”
The Yates Memo states:
3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
Early and regular communication between civil attorneys and criminal prosecutors handling corporate investigations can be crucial to our ability to effectively pursue individuals in these matters. Consultation between the Department’s civil and criminal attorneys, together with agency attorneys, permits consideration of the full range of the government’s potential remedies (including incarceration, fines, penalties, damages, restitution to victims, asset seizure, civil and criminal forfeiture, and exclusion, suspension and debarment) and promotes the most thorough and appropriate resolution in every case. That is why the Department has long recognized the importance of parallel development of civil and criminal proceedings. See USAM 1-12.000.
Criminal attorneys handling corporate investigations should notify civil attorneys as early as permissible of conduct that might give rise to potential individual civil liability, even if criminal liability continues to be sought. Further, ifthcre is a decision not to pursue a criminal action against an individual – due to questions of intent or burcleu of prool~ for example criminal attorneys should confer with their civil counterparts so that they may make an assessment under applicable civil statutes and consistent with this guidance. Likewise, if civil attorneys believe that an individual identified in the course of their corporate investigation should be subject to a criminal inquiry, that matter should promptly be referred to criminal prosecutors, regardless ofthe current status ofthe civil corporate investigation.
Department attorneys should be alert for circumstances where concurrent criminal and civil investigations of individual misconduct should be pursued. Coordination in this regard should happen early, even if it is not certain that a civil or criminal disposition will be the end result for the individuals or the company.
In her speech, Yates stated:
“The best way to ensure that criminal prosecutors don’t need to go back and build a new case after the civil attorneys finish their inquiry – or vice versa – is to make sure that everyone’s talking to each other from the very beginning. And so we are directing our civil and criminal attorneys to collaborate to the full extent permitted by law at all stages of the investigation. The Department of Justice has access to a wide range of enforcement remedies – from civil penalties to lengthy prison sentences – and the only way to leverage our full authority is by ensuring early and regular communication. To make sure nothing slips through the cracks, we’re formalizing these lines of communication. Going forward, regardless of whether a corporate case begins as a civil or criminal inquiry, the DOJ attorneys initially handling the matter will be responsible for notifying the “other side of the house” about the investigation. As the case proceeds, civil and criminal attorneys will be in regular contact. If prosecutors decide not to bring criminal charges against individuals, they will need to notify their civil counterparts, who can make an independent assessment of civil liability. And if civil attorneys identify individuals during their investigation who should be subject to a criminal inquiry, they will be expected to promptly refer the matter to criminal prosecutors, regardless of the current status of the civil corporate investigation.”
The Yates Memo states:
4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
There may be instances where the Department reaches a resolution with the company before resolving matters with responsible individuals. In these circumstances, Department attorneys should take care to preserve the ability to pursue these individuals. Because of the importance of holding responsible individuals to account, absent extraordinary circumstances or approved departmental policy such as the Antitrust Division’s Corporate Leniency Policy, Department lawyers should not agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees. The same principle holds true in civil corporate matters; absent extraordinary circumstances, the United States should not release claims related to the liability of individuals based on corporate settlement releases. Any such release of criminal or civil liability clue to extraordinary circumstances must be personally approved in writing by the relevant Assistant Attorney General or United States Attorney.
5. Corporate cases should uot be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
If the investigation of individual misconduct has not concluded by the time authorization is sought to resolve the case against the corporation, the prosecution or corporate authorization memorandum should include a discussion of the potentially liable individuals, a description of the current status of the investigation regarding their conduct and the investigative work that remains to be done, and an investigative plan to bring the matter to resolution prior to the end of any statute of limitations period. If a decision is made at the conclusion of the investigation not to bring civil claims or criminal charges against the individuals who committed the misconduct, the reasons for that determination must be memorialized and approved by the United States Attorney or Assistant Attorney General whose office handled the investigation, or their designees.
Delays in the corporate investigation should not affect the Department’s ability to pursue potentially culpable individuals. While every effort should be made to resolve a corporate matter within the statutorily allotted time, and tolling agreements should be the rare exception, in situations where it is anticipated that a tolling agreement is nevertheless unavoidable and necessary, all efforts should be made either to resolve the matter against culpable individuals before the limitations period expires or to preserve the ability to charge individuals by tolling the limitations period by agreement or court order.
In her speech, Yates stated:
“The fourth and fifth policies relate to how we resolve cases. As I mentioned earlier, delays in corporate investigations should not delay our ability or willingness to resolve related cases against individuals. In most instances, this will mean that we resolve cases with individuals before or at the same time that we resolve the matter against the corporation. If, however, DOJ attorneys decide it is necessary to resolve the corporate case first, they will only be permitted to do so once they have demonstrated a clear plan to their supervisors for resolving the related individual cases – promptly and before the statute of limitations expires. If at the conclusion of the investigation the DOJ attorneys decide not to bring charges against individuals, they will be expected to memorialize their justification and then obtain approval from the U.S. Attorney or the Assistant Attorney General overseeing the investigation. Likewise, we are instructing our attorneys that they should not release individuals from civil or criminal liability when resolving a matter with corporation, except under the rarest of circumstances. When such circumstances do arise, the litigating attorneys will be required to obtain written approval from the relevant U.S. Attorney or Assistant Attorney General. We will be monitoring these approval processes closely, in no small part so we can more readily identify whatever trends are limiting our ability to pursue individual cases.”
The Yates Memo states:
6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
The Department’s civil enforcement efforts are designed not only to return government money to the public fisc, but also to hold the wrongdoers accountable and to deter future wrongdoing. These twin aims – of recovering as much money as possible, on the one hand, and of accountability for and deterrence of individual misconduct, on the other – are equally important. In certain circumstances, though, these dual goals can be in apparent tension with one another, for example, when it comes to the question of whether to pursue civil actions against individual corporate wrongdoers who may not have the necessary financial resources to pay a significant judgment.
Pursuit of civil actions against culpable individuals should not be governed solely by those individuals’ ability to pay. In other words, the fact that an individual may not have sufficient resources to satisfy a significant judgment should not control the decision on whether to bring suit. Rather, in deciding whether to file a civil action against an individual, Department attorneys should consider factors such as whether the person’s misconduct was serious, whether it is actionable, whether the admissible evidence will probably be sufficient to obtain and sustain a judgment, and whether pursuing the action reflects an important federal interest. Just as our prosecutors do when making charging decisions, civil attorneys should make individualized assessments in deciding whether to bring a case, taking into account numerous factors, such as the individual’s misconduct and past history and the circumstances relating to the commission of the misconduct, the needs of the communities we serve, and federal resources and priorities.
Although in the short term certain cases against individuals may not provide as robust a monetary return on the Department’s investment, pursuing individual actions in civil corporate matters will result in significant long-term deterrence. Only by seeking to hold individuals accountable in view of all of the factors above can the Department ensure that it is doing everything in its power to minimize corporate fraud, and, over the course of time, minimize losses to the public fisc through fraud.
In her speech Yates stated:
“Sixth and final, we’re broadening the focus of our civil enforcement strategy. Generally speaking, when a criminal prosecutor is deciding whether to charge an individual, he or she consults with the department’s principles of federal prosecution, which lays out various considerations, including the nature and seriousness of the offense and the impact of the crime on its victims. While some of our civil litigators have routinely pursued individuals, others have not – primarily because they have focused on the likelihood of financial recovery from their investigative targets. This was an understandable practice, given that monetary sanctions are the most common form of relief in civil case, but it naturally prioritized large-scale corporate investigations over civil enforcement actions against the individuals who perpetrated the wrongdoing.
There is real value, however, in bringing civil cases against individuals who engage in corporate misconduct, even if that value cannot always be measured in dollars and cents. Civil enforcement actions, like criminal prosecutions, hold wrongdoers accountable for their actions and deter future wrongdoing. While we may not be able to satisfy the entire judgment with an individual’s resources, if that individual is liable, we can take what they have and ensure that they don’t benefit from their wrongdoing. These individual civil judgments will also become part of 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.
Beyond that, our civil attorneys recognize that they have an obligation to protect not only the public fisc, but also the public itself. So, going forward we will be pursuing civil actions against corporate wrongdoers even if those wrongdoers don’t have the financial resources to satisfy a significant money judgment. And our civil lawyers will be looking at factors similar to those considered by our criminal prosecutors, such as the individual’s misconduct, past history and the circumstances relating to the commission of the misconduct, in deciding whether to bring suit. An individual’s financial resources will be only one consideration in that assessment, rather than a determinative factor.
We are going to continually reexamine our practices to ensure that we’re doing everything we can to hold corporate wrongdoers accountable. Despite this, there will still be cases where we don’t have the evidence necessary to establish an individual’s criminal intent beyond a reasonable doubt. And regardless of public demand, we will never bring charges against anyone unless we are satisfied that the individual is in fact guilty of a crime. That is the core of our responsibility and promise to the American people. And I should be clear: while these policy shifts are effective immediately, the public won’t see the impact of these steps over night. Some of these policies will affect cases that are only beginning now and may take years to become public. In the coming weeks and months, we’ll be providing additional training and guidance to our prosecutors to help them take full advantage of these policy shifts. Next week, for example, I will be convening a national training conference in Washington for experienced white collar prosecutors and civil litigators from across the department to discuss these new policies and other practical ways to enhance our efforts to hold corporate wrongdoers accountable.”
In concluding her speech, Yates stated:
“We make these changes recognizing the challenges that they may present. Some corporations may decide, for example, that the benefits of consideration for cooperation with DOJ are not worth the costs of coughing up the high-level executives who perpetrated the misconduct. Less corporate cooperation could mean fewer settlements and potentially smaller overall recoveries by the government. In addition, individuals facing long prison terms or large civil penalties may be more inclined to roll the dice before a jury and consequently, we could see fewer guilty pleas.
Only time will tell. But if that’s what happens, so be it. Our mission here is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens. It’s the only way to truly deter corporate wrongdoing.
At the Department of Justice, our ability to fulfill our responsibilities – to advocate for victims, to vigorously pursue misconduct, to seek justice in all its forms – depends on public confidence in the institutions we represent. But the public’s confidence is not something to be assumed or expected; it is something that we must earn and be vigilant in maintaining over time. We do that by relentlessly pursuing wrongdoing, no matter who those wrongdoers may be. The men and women of the Department of Justice have always embraced this challenge, as both an opportunity and a privilege and once again, we embrace the task presented here. There is one system of justice, demanding that all be held accountable when laws are broken. We look forward to the work that will be required as we seek greater accountability from those who use corporations to lie, cheat and steal. It won’t always be easy, but we’re ready for it. Our nation and its citizens deserve nothing less.”