Fall.  The colors are changing and the apples are crisp.

Fitting of the season, the FCPA Professor apple award goes to Matthew Fishbein (Debevoise & Plimpton).

Since the release of the Yates Memo, I’ve commented more than once that those who think the Yates Memo represented something new are misinformed.

Fishbein (who previously served in the U.S. Attorney’s Office for the Southern District of New York as Chief Assistant U.S. Attorney and Chief of the Criminal Division, among other DOJ positions) surely is not among this category.

Indeed, three weeks prior to release of the Yates Memo, Fishbein wrote this article and picks an orchard.

“[T]he lack of individual prosecutions [in most DOJ corporate enforcement actions] is the inevitable consequence of making a potential criminal case out of every news story where something bad occurs. While the needs and interests of companies often lead them to enter into settlements even where there is little evidence that a crime actually was committed, individuals are more likely to test the government’s case – especially if that case rests on questionable footing. This article discusses the context in which corporations cooperate with the government and suggests that the DOJ’s increased emphasis on cooperation against individuals may undermine corporate defense counsel’s ability to obtain or recommend their client’s cooperation in the many marginal cases where evidence of criminal conduct is lacking.

A number of recent statements by top DOJ officials suggest that their explanation for the lack of individual prosecutions is that companies are largely to blame. The DOJ has suggested that by dragging their feet instead of actively cooperating – for example, by hiding behind over-expansive interpretations of foreign data privacy laws or allowing culpable employees to leave the country – companies effectively have put up roadblocks to the prosecution of individuals.

While there may be some examples of companies holding back in their cooperation, a corporation’s conduct during the course of a government investigation is rarely the reason that individuals are not prosecuted. Rather, individuals are not prosecuted for the conduct companies admit because, in many marginal cases, there is insufficient evidence that a crime actually occurred. Why would a company enter into a criminal settlement where the underlying conduct does not give rise to a crime? The answer is simple: companies frequently determine that a “bad” settlement may be a better resolution than a drawn out, litigated victory. And as prosecutors have grown to appreciate the great leverage they hold over corporate entities, they have exercised this leverage in the pursuit of increasingly marginal cases. They do so, in part, because the risk is minimal (the prosecutor’s case is unlikely to be challenged in court) and the reward is great (the corporations pay enormous penalties).

Prosecutors have considerably less leverage over individuals, who, facing the possibility of incarceration and financial devastation in the event of a criminal conviction, are more likely to test the government’s case and put the government at risk of a high-profile loss. Given the extreme public pressure to bring charges against individuals in connection with the financial crisis, it stands to reason that if prosecutors could prove cases against corporate executives, they would bring those cases in a heartbeat. Indeed, Attorney General Holder recently acknowledged that the lack of individual prosecutions in the wake of the financial crisis was “not for lack of trying.”

Faced with a largely unsuccessful record in the pursuit of individual prosecutions after the financial crisis, it appears that, going forward, the DOJ is going to try even harder. According to a senior DOJ official, “[t]he prosecution of individuals – including corporate executives – for white-collar crimes is at the very top of the Criminal Division’s priority list.” Consistent with this goal, a number of DOJ officials have explained that “true cooperation” with a government investigation requires that the corporation identify culpable individuals and provide the government with evidence that implicates them. Without such evidence of individual culpability, corporations will not receive full cooperation credit, even if they do all of the things that traditionally have been viewed as the hallmarks of robust cooperation such as volunteering information not otherwise known to the government, providing documents and witnesses outside the government’s subpoena power, and making productions and disclosures in a timely manner.

[…]

The DOJ’s corporate cooperation policy is in some ways a double-edged sword. In cases where there is clear-cut evidence of wrongdoing, the DOJ’s policy on cooperation makes good sense and should be relatively straightforward in its application: in order to obtain full cooperation credit, it makes sense that companies should have to identify and disclose the information relevant to individual misconduct. This requirement is consistent with the government’s policy on providing cooperation credit for individuals who substantially assist in the prosecution of others. However, the policy presents a real dilemma for companies responding to the marginal, gray-area cases described above, where the company may for business reasons want to reach a settlement even where it has strong defenses, but the absence of evidence of individual culpability may preclude it from receiving the benefits of “full cooperation.”

In these kinds of cases, defense counsel is left facing a host of difficult questions. If a company should make “securing evidence of individual culpability the focus of [its] investigative efforts,” what is it to do when that evidence does not exist? If a company targets its internal investigation toward developing cases against individuals, should individuals be provided with counsel at the outset? If true cooperation “requires identifying the individuals actually responsible for the misconduct,” can a company “truly cooperate” when there are no such responsible individuals? If, in order to receive “full cooperation credit,” a company should emphasize its efforts to obtain evidence of individual culpability, can it still receive “full credit” when those efforts are fruitless? And if securing evidence of individual culpability is a “primary focus” when the government weighs the Filip Factors, will a company be subject to harsher charging decisions or settlement terms simply because no such evidence exists?

Taken together, these questions suggest that a policy designed to incentivize cooperation may have the perverse effect of deterring it: if a company knows that it cannot receive full cooperation credit, it may decide that it is not worth the effort to try; and if individuals know that companies are incentivized to obtain evidence against them, they may be far less willing to cooperate during internal investigations.

Moreover, under the DOJ’s cooperation policy, companies seeking to resolve criminal investigations in marginal cases may actually be penalized when their individual employees did not engage in criminal conduct. In such cases, defense counsel may consider challenging prosecutors to identify what aspect of their investigation was lacking or what evidence of individual culpability should have been uncovered. DOJ officials have said that the government will conduct its own investigations to “pressure test” a company’s internal investigation. If the government’s test reveals no flaws in the company’s investigation, will the government still not provide full cooperation credit?

The DOJ’s policy on cooperation is unlikely to solve the problem that it was likely designed to address, i.e., the lack of individual prosecutions. Although there may be an increase in individual prosecutions in cases of clear wrongdoing, the DOJ’s policy is unlikely to have an impact on the marginal cases, where companies often settle in spite of the evidence – not because of it.

While the needs and interests of companies in reaching settlements have allowed the government to obtain larger and larger settlements in cases where the facts and law likely would not permit them to succeed with a jury, the government must live with the fact that no amount of company cooperation will turn facts that do not provide a basis for individual prosecutions into facts that do. The government either has to accept this – and continue along the path of corporate settlements without individual prosecutions – or stop pursuing investigations and accepting settlements where there are no individuals who have actually committed crimes.”

[The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics. There is no prize, medal or plaque awarded to the FCPA Professor Apple Award recipient. Just recognition by a leading FCPA website visited by a diverse group of readers around the world. There is no nomination procedure for the Apple Award. If you are writing something informed, candid and fresh about the FCPA or related topics, chances are high that I will find your work during my daily searches for FCPA content.]