This article originally appeared in Corporate Counsel on January 1, 2017.
Much has been written over the last sixteen months interpreting the shift in U.S. Justice Department policy placing greater emphasis on individual accountability for corporate wrongdoing in federal civil and criminal enforcement proceedings. Apparently not all of it was accurate. In what has become known as the “Yates Memo” issued on September 9, 2015, U.S. Deputy Attorney General Sally Quillian Yates outlined six steps to strengthen the Department’s pursuit of individual wrongdoing in corporate investigations:
- 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;
- 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 or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation;
- 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
- 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.
Following issuance of the policy, Ms. Yates gave a series of speeches addressing her memo and the Department’s renewed focus on individual accountability. In one speech to the New York City Bar Association White Collar Crime Conference on May 10, 2016, Yates spoke to what she perceived to be a fundamental disconnect between the contents of her memo and the way it was being interpreted: “I will confess that I haven’t read every single client alert that has gone out since this policy was issued, but from what I have read, the reaction in the corporate defense bar seems to be everything from ‘The sky is falling,’ to ‘Nothing has changed.’ As I’ve said before, the truth, as it often is, is somewhere in the middle.”
Given the Department’s recent announcement of its $4.3 billion settlement in civil and criminal penalties with Volkswagen, along with the indictment of seven of its corporate executives for their part in a conspiracy to cheat on U.S. emissions tests, the need for corporate counsel to understand what the Yates Memo does and does not say has never been greater.
Using the “Department’s Frequently Asked Questions: Corporate Cooperation And The Individual Accountability Policy” (FAQ) issued on November 30, 2016, as a guide, here are five common misconceptions about the Department’s corporate cooperation and individual accountability policy.
- Corporations are required to cooperate with the U.S. Justice Department. False. Companies, like individuals, are not required to cooperate with the Justice Department during an investigation. That being said, failure to cooperate with the federal government can have a wide array of negative consequences, particularly in highly-regulated industries. If a corporation seeks to obtain any form of credit for its cooperation in order to mitigate the amount of fines and penalties, or avoid criminal prosecution of the corporation or its executives, then cooperation with the Department in the manner set forth in the Yates Memo is necessary. The value of such corporate cooperation is memorialized in Section 9-28.700 of the U.S. Attorneys’ Manual, which states: “Cooperation is a potential mitigating factor, by which a corporation – just like any other subject of a criminal investigation – can gain credit in a case that otherwise is appropriate for indictment and prosecution.”
- Corporations who choose to cooperate with the U.S. Justice Department are required to waive the attorney-client and work product privilege(s). False. The U.S. Attorneys’ Manual is crystal clear that receiving cooperation credit is in no way contingent on the waiver of either privilege. Indeed, Section 9-28.710 of the Manual specifically states that “prosecutors should not ask for such waivers and are directed not to do so.” However, in the Department’s view these privileges do not extend to the disclosure of relevant facts about the matters under investigation, unless the corporation can satisfactorily explain the existence and basis of such a claim. Nor do they extend to communications of counsel made in furtherance of a crime or fraud and therefore outside the attorney-client privilege under the crime-fraud exception.
- Corporations are required to conduct a lengthy, costly investigation every time it learns of misconduct. False. Investing in outside counsel to conduct a thorough internal investigation of all serious allegations of corporate wrongdoing, particularly in areas that have historically been the most fertile for corporate prosecution, is strongly advised. Indeed, the disclosure of relevant facts gathered during a corporation’s internal investigation is specifically endorsed in Section 9-28.720(a) of the U.S. Attorney’s Manual governing cooperation credit. But such investigations need not break the bank. Nor must it necessarily deliver a prosecutable case to the Justice Department. Rather, the Justice Department expects such investigations to be thorough in order to uncover all relevant facts, but narrowly tailored to the scope of the wrongdoing under investigation.
- Corporations are not permitted to enter into joint defense agreements with counsel for corporate executives. False. Section 9-28.730 of the U.S. Attorneys’ Manual specifically states that “mere participation by a corporation in a joint defense agreement does not render the corporation ineligible to receive cooperation credit.” However, such agreements do have the potential to interfere with the corporation’s ability to cooperate. As stated in the Manual: “Such might be the case if the corporation gathers facts from employees who have entered into a joint defense agreement with the corporation, and who may later seek to prevent the corporation from disclosing the facts it has acquired.” As a result, the Manual advises that corporations “may wish to address this situation by crafting or participating in joint defense agreements, to the extent they choose to enter them, that provide such flexibility as they deem appropriate.”
- Corporations must take disciplinary action against employees found to have engaged in wrongdoing in order to obtain cooperation credit. False. The FAQ document published by the Justice Department makes it clear that “a company is not required to take specific actions against employees as part of its efforts to obtain cooperation credit.” Nevertheless, the Principles of Federal Prosecution of Business Organizations set forth in Section 9-28.1000 of the U.S. Attorneys’ Manual state that “prosecutors should consider . . . whether the corporation appropriately disciplined wrongdoers, once those employees are identified by the corporation as culpable for the misconduct.” This is because a “corporation’s response to misconduct says much about its willingness to ensure that such misconduct does not recur.”
How is the nomination of Senator Jeff Sessions for U.S. Attorney General likely to impact the Justice Department’s policy shift towards individual accountability for corporate misconduct? Ms. Yates, for one, is optmistic that the Department’s renewed emphasis on individual accountability is here to stay. In her remarks at the 33rd Annual International Conference on Foreign Corrupt Practices Act on November 30, 2016, she remarked: “I know—because I’ve witnessed it myself—that individual accountability isn’t a Democratic principle or a Republican principle, but is instead a core value of our criminal justice system that perseveres regardless of which party is in power.” Only time will tell if she will be proven correct.
Christopher D. Carusone is a Partner in the Firm’s Harrisburg office, where he serves as Chair of the Firm’s Government Law & Regulatory Affairs and Energy & Utilities Groups, as well as Co-Chair of the Internal Investigations Group.