Executives Beware: DOJ’s New Yates Memo Signals Focus on Prosecuting Individuals
In light of the near-unbridled discretion of the U.S. Department of Justice (DOJ) to bring federal criminal charges, businesses and their leaders are wise to pay close attention to the prosecutor’s “playbook.” Sometimes these lessons emerge in the pattern of investigations and prosecutions, but often the priorities are found in new policy declarations.
On September 9, 2015, the new “sheriffs” in the Attorney General’s Office made an important new policy announcement, known as "the Yates Memo." If history is any indicator, this new mandate from “Main Justice” will soon be coming to the U.S. Attorney’s Office near you.
The biggest thrust of the new memo is that it directs federal prosecutors to aggressively investigate and prosecute more individuals who are involved in committing corporate crimes. Historically, individual prosecutors have always had broad discretion to consider bringing charges against both organizations and culpable individuals – depending upon the unique facts and circumstances of each case.
This new guidance lists six key steps that are designed to strengthen DOJ’s pursuit of individual criminal liability:
- “In order to be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in the misconduct;”
- “Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation;”
- “Criminal and civil attorneys handling corporate investigations should be in routine communication with one another;”
- “Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability or any individuals;”
- “Corporate cases should not be resolved without a clear plan to resolve related individual cases before the stature of limitations expires and declinations as to individuals in such cases must be memorialized;” and
- “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.”
A Power-Shift to Prosecutors with Subjective Standards
Every prosecution leads to frequent clashes and disagreements between prosecutors and defense counsel – typically over key facts, and how they should be interpreted. Frequently, these disputes are the subject of trial and can be resolved by a neutral third party – either the judge or a jury.
However, in the course of an investigation, all the power and interpretive authority rests with the prosecutor. Armed with this new memo, the federal prosecutors will be emboldened to make unilateral decisions on whether the corporation’s disclosures have been “complete?” More specifically, the key inquiry will be whether the corporation has specifically identified the particular individuals who were responsible for, or involved in, or aware of, the corporate misconduct (along with all the related and supporting documents and evidence). Instead of being one factor, among many, to consider in evaluating the extent of credit that a company should get for its cooperation – identifying individual “bad actors” will be the single threshold issue that will determine whether the company will get any credit at all.
Given the relative ease in prosecuting corporations, due to the reduced legal thresholds, this “all or nothing” test is dangerous. Armed with this mandate and authority, prosecutors will apply even more pressure on company counsel to comply with any and all requests. The desire to produce an objective and fair internal investigation may be subsumed with a desire to resist pushing back too hard on the prosecutor, who controls whether the corporate clients gets “credit” or gets “charged.” Future Diagnosis: prosecutorial over-reaching; increased internal “finger-pointing” to secure corporate credit.
A Big Chill on Internal Investigations: Choosing Loyalties
Historically, the most efficient source of information that the government receives during an investigation is often provided by the corporation that is under investigation. And I am not referring to the production from the formal legal tools such as grand jury subpoenas. Rather, this information comes from the voluntary efforts and “white paper” presentations that company counsel often make at the conclusion of internal investigations (as part of preliminary negotiations). Ironically, by sending a clear message that individuals will be aggressively pursued, DOJ may actually hamper the effectiveness of such internal investigations, as well as the accuracy of the information gathered. When requested to participate in internal investigation interviews, the people that are “near the scandal” may choose not to cooperate at all, based upon concerns about their personal liability, the risk of being “scape-goated” or “thrown under the bus” for the sake of the company. Since the memo is clear that corporate plea agreements will typically not address individual liability, no promises can be given. Future Diagnosis: internal mistrust, suspicions, and divided loyalties.
The Illogic and Unfairness of Retrospective and Cross-Scandal Retribution
Criminal enforcement priorities often change in response to the need for increased punishment and deterrence. Here, this memo appears to be the new Attorney General’s answer to the widespread criticism of DOJ for failing to prosecute executives for crimes that lead to the mortgage crisis. The logic appears to be that since a lot of “bad guys” got away with the last scandal, DOJ now intends to punish the responsible people harshly in all future scandals. This doesn’t seem particularly fair. But in the federal criminal arena, individual fairness is often overcome by the desire to change behavior and improve compliance. The take-home lesson: corporate decision-makers will receive higher scrutiny and will be treated more harshly due to the completely unrelated sins of other corporate “bad apples.”
Conclusion: Prevention is Truly the Best Medicine
Rather than simply “wait and see,” companies must take a close look at the policy and understand its implications, and to re-examine: a) the “effectiveness” of their own compliance programs; b) their own “enforcement-readiness;” and c) the policies surrounding internal investigations and cooperation. Perhaps most importantly, DOJ’s new mandate on personal accountability should give every individual executive pause to make sure they understand the applicable standards and risks of personal criminal liability and the need to demonstrate and document their adherence with the law.
When it comes to corporate and individual criminal liability – prevention is truly the best medicine.