In recent years, there has been a continuing emphasis by the Department of Justice (DOJ) on investigations of corporate wrongdoing, including an increase in the investigation and finding of individual liability for that wrongdoing. This emphasis recently was documented in something now being referred to as the “Yates Memorandum.”
According to Sally Quillian Yates, Deputy Attorney General for the DOJ, “fighting corporate fraud and other misconduct” is one of the DOJ’s top priorities. In a Memorandum dated September 9, 2015, and issued to Assistant Attorney Generals in almost every division of the DOJ and to all 94 of the current U.S. Attorneys for the DOJ, Yates started by explaining how bringing accountability to individuals within corporations is one of the most effective ways to combat corporate misconduct and to promote “the public’s confidence in our justice system.”
The Memorandum spells out six keys mechanisms to be followed by investigators to strengthen the DOJ’s pursuit of potentially culpable individuals. Those six steps are, in summary:
• First, to become eligible for any “cooperation credit” — a mitigating factor of which many companies take advantage when working with the DOJ to come to a prompt and effective resolution of an investigation – companies must “completely disclose to the Department all relevant facts about individual misconduct,” which includes identifying all individuals “involved in or responsible for the misconduct at issue” regardless of position, status, or seniority.
The troubling language in that directive is the sentence that specifies that if a company seeking cooperation credit “declines to learn of such facts,” all credit will be withheld. Yates does not identify who at the DOJ will determine how or whether a company has “declined” to learn relevant facts. She simply states that no credit will be given if an investigator subjectively believes that the company is failing and/or “declining” to provide information.
• Second, Yates stresses that all investigations, both criminal and civil, should begin with a focus on individual wrongdoing. She specifically states that such focus “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.”
While Yates expresses her belief that such focus will lead to charges against “culpable individuals,” she does not take into account the fact that providing information “against individuals higher up the corporate hierarchy” may, in essence be a mechanism for culpable individuals to offer “bigger fish” to investigators, extricating themselves from fault but complicating the search for truth by including non-culpable persons, or by giving what the investigators “want,” and not the less important but truthful information that the witnesses actually may have.
• Third, Yates asks for “early and regular communication” between civil attorneys and criminal prosecutors handling corporate investigations. According to Yates, such early coordination should occur, “even if it is not certain that a civil or criminal disposition will be the end result” of the investigation.
In other words, more of these investigations will include discussion among DOJ attorneys of potential individual liability to insure that all appropriate charges are brought against those individuals, whether or not future charges are an initial certainty.
Further, while this provision of the Memorandum ostensibly is geared toward a coordination of effort between civil and criminal investigators, it does not address limitations placed by federal rules on sharing, for example, grand jury materials or other privileged or protected materials.
• Fourth, DOJ attorneys are instructed “not to agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees.” Should the attorney believe that extraordinary circumstances exist that call for such dismissal or immunity, none will be given without written approval by the relevant Assistant Attorney General or U.S. Attorney.
This increase in bureaucratic involvement could add a layer of complexity to an already procedurally complicated investigatory process.
• Fifth, corporate investigations now will not be resolved without a “clear plan” to resolve associated cases against any related individual. If a decision is made at the end of an investigation not to bring civil or criminal claims against individuals involved , the reasons for that decision mast be documented and approved by the U.S. Attorney or Assistant Attorney General whose office handled the investigation.
Whether or not this provision alone results in more charges ultimately filed against individuals remains to be seen, but seems likely.
• Last, Yates states that the pursuit of civil actions against individuals should not be based solely on the individuals’ ability to satisfy a judgment in the case. According to Yates, “[a]lthough 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.”
Awkwardly, this provision makes it sound as if the DOJ’s previous focus has been on the “robust monetary return on the department’s investment” but now should be broadened to reinforce the longer-term goal of deterrence.
While the Yates memorandum does not make dramatic changes to the way in which investigations into corporate wrongdoing currently are handled by the DOJ, it ups the ante for investigators pursuing individuals — especially high-ranking corporate officers — in those actions.
Unfortunately, the memo clearly leaves opportunities for subjective decisions regarding how far the DOJ attorneys can go to resolve cases against individuals charged with corporate wrongdoing
In-house and outside counsel who represent corporations and their C-Suite managers should fully leverage their resources to obtain the available universe of information prior to the DOJ’s involvement in any investigation of wrongdoing in order to fully understand the relevant facts, as the potential consequences of not being able to identify culpable individuals could be dire – at least according to the Yates Memorandum.