The DOJ made a significant splash on Wednesday when a memorandum from Deputy Attorney General Sally Quillian Yates to all DOJ attorneys, including the U.S. Attorneys across the country, announced a policy to increasingly target individuals involved in corporate crimes. Whether the so-called “Yates Memo” will significantly change current DOJ practices remains to be seen. What we know for certain is that it was intended to send a message both to the public and to the “C suite.”
By having the Justice Department’s number two official instruct prosecutors to target individual business people for criminal prosecution and civil sanctions, DOJ is upping the ante in white collar enforcement—and likely making it more difficult for companies and their counsel to secure unfettered cooperation from executives in internal investigations.
Continuing Evolution of the “Principles”
The Yates Memo is the latest in a line of similar pronouncements that began in 1999 when then-Deputy Attorney General Eric Holder penned a similar memo titled “Bringing Criminal Charges Against Corporations.” The principles stated in the Holder Memo continued to evolve through several subsequent memos from later Deputy Attorneys General (Thompson Memo (2003), McNulty Memo (2006), Filip Memo (2008)), and were eventually “codified” in the U.S. Attorney’s Manual (“USAM”) as the Principles of Federal Prosecution of Business Organizations (USAM § 9-28.000).
The “Principles” are a detailed framework that federal prosecutors are supposed to rely on in assessing whether and what charges to bring against a corporation in a criminal case. They also provide corporations and their counsel tools for considering important issues such as cooperation and remediation. The “Principles” and other sections of the USAM are being revised to incorporate the Yates Memo’s dictates on individual accountability for corporate wrongdoing.
Guidance Issued in the Yates Memo
The Yates Memo identifies six “key steps” to enable DOJ attorneys “to most effectively pursue the individuals responsible for corporate wrongs.”
- First, corporations will be eligible for cooperation credit only if they provide DOJ with “all relevant facts” relating to all individuals responsible for misconduct, regardless of the level of seniority.
- Second, both criminal and civil DOJ investigations should focus on investigating individuals “from the inception of the investigation.”
- Third, criminal and civil DOJ attorneys should be in “routine communication” with each other, including by criminal attorneys notifying civil counterparts “as early as permissible” when conduct giving rise to potential individual civil liability is discovered (and vice versa).
- Fourth, “absent extraordinary circumstances,” DOJ should not agree to a corporate resolution that provides immunity to potentially culpable individuals.
- Fifth, DOJ should have a “clear plan” to resolve open investigations of individuals when the case against the corporation is resolved.
- Finally, civil attorneys should focus on individuals as well, taking into account issues such as accountability and deterrence in addition to the ability to pay.
While cast and emphasized as new policy, these steps are substantively part and parcel of DOJ’s longstanding standard operating procedures and expectations in white collar cases. The notion of targeting individuals for prosecution has been a stated goal expressed by numerous DOJ officials in recent years, including then-Assistant Attorney General for the Criminal Division Lanny Breuer (“I continue to believe that prosecuting individuals – and levying substantial criminal fines against corporations – are the best ways to capture the attention of the business community“; Nov. 16, 2010); then-Attorney General Eric Holder (“All other things being equal, few things discourage criminal activity at a firm – or incentivize changes in corporate behavior – like the prospect ofindividual decision-makers being held accountable. A corporation may enter a guilty plea and still see its stock price rise the next day. But anindividual who is found guilty of a serious fraud crime is most likely going to prison“; Sept. 17, 2014); and current Assistant Attorney General for the Criminal Division Leslie Caldwell (“If you choose to cooperate with us, we expect that you will provide us with those facts, be they good or bad. Importantly, that includes facts aboutindividuals responsible for the misconduct, no matter how high their rank may be“; May 12, 2015).
What this Means to Corporations and their Counsel
It should not be news to anyone inside or outside a corporation that federal prosecutors are being asked to identify and prosecute individual executives and managers for their roles in corporate misconduct. However, the Yates Memo provides a telling insight into DOJ’s current policy objective: reach the highest-level business leaders through cooperation deals with lower-ranking executives. The risk with that emphasis is two-fold: (1) lower-level personnel, pressed to deliver something of evidentiary and/or investigative value against higher-ups, could feel pressured to give prosecutors what they want, rather than the less helpful truth they may have; and (2) counsel conducting internal corporate investigations may see less cooperation from executives who fear implicating themselves in suspected wrongdoing or who will hold what they know as a chip with which to bargain with prosecutors.
That kind of chilling effect could significantly impact federal prosecutors who have come to be heavily reliant on corporate cooperation and the results of internal investigations as part of the Department’s white collar enforcement program. As a result, DOJ could find itself facing an increasing amount of the “painstaking reviews” the Yates Memo seeks to avoid.
At the same time, while perhaps presenting new obstacles to a thorough internal investigation, the Yates Memo raises the threshold for obtaining the value of cooperation during a DOJ investigation. Thus, it remains critical for businesses to develop as full and thorough a set of facts as possible when responding to government scrutiny. Ultimately, the Yates Memo counsels that the best defense remains a business’s proactive response, including:
- Implementation of robust ethics and compliance programs designed to deter, identify and remediate violations of laws and regulations, coupled with equally robust employee training and issue reporting mechanisms;
- Extensive management support of those compliance efforts, including dedication of resources and active oversight by management, up to the board level;
- Prompt management response to issues escalated to their attention; and
- Documentation that will allow the company and its executives to demonstrate that they are working in good faith to operate the company in an ethical and compliant fashion.
These types of prophylactic measures are the best means of depriving any prosecutorial spark of concern over executive conduct, of the oxygen it needs to become a conflagration.
What this Could Mean for DOJ
While the message of the Yates Memo is not new, it is clearly intended to step up the pressure on prosecutors to vigorously pursue individuals for white collar crimes. As with any such marching order, the risk of overreaction is present. For example, will this policy incentivize prosecutors to pursue the outer limits of control-person theories of criminal and civil liability against individuals only in order to satisfy a policy goal of deterring misconduct? Will prosecutors be required to exercise their significant power and discretion by seeking to make examples out of high-level executives, even in circumstances where those executives did not share in the pool of knowledge and intent of those directly involved in wrongdoing?
The Yates Memo comes at a time when corporations, particularly in the financial services industry, have been particularly vilified and feel under siege by a barrage of seriatim investigations and efforts by new or newly ambitious regulatory bodies to expand their reach and stretch the limits of their oversight authority. Settlements where the government has demanded hundreds of millions to billions of dollars are now routine. Some of the funds extracted have not gone to the Treasury, but rather have been used to fund social program objectives and other endeavors that many view as far from the fines, penalties and/or restitution traditionally imposed in connection with criminal prosecutions and civil enforcement sanctions.
Further, such extended monetary aspects of these settlements raise the specter of a small-town “speed trap”-type factor driving government settlement demands. That is cause for legitimate concern in the business community, especially where many of these settlements are premised not on unmistakable evidence of fraud or other criminal misconduct, but rather seem to be premised on questionable theories of legal liability propounded in the context of the exercise of the government’s tremendous leverage when threatening criminal prosecution. DOJ’s desire to more “fully leverage its resources” by targeting individuals at the very least raises a risk that its hunger for results will cause it to lose sight of the importance of fairness and balance in white collar investigations.
The Yates Memo inflames that concern by observing that cases against individuals do not provide “as robust a monetary return on the Department’s investment” as corporate enforcement actions. As unintentional as it may be, DOJ should expect that those carefully considering that statement may view it as cynical confirmation of their suspicions that DOJ has a revenue-driven motive for some aspects of its enforcement policy. [1]
One effect of this policy announcement is clear: Navigating the pitfalls of internal and government investigations is going to get even more difficult for all concerned − and very personal for the executives involved.
1. The Yates Memo states that it is the product of the deliberations of an internal working group. Other such policy changes by DOJ have involved consultation with the bar prior to pronouncements. It may be that some criticisms of this policy announcement might have been identified or avoided through such external consultation.