I Want You! DOJ’s New Policy on Corporate Investigations Focuses on Individuals

Practical Law Legal Update w-000-6027 (Approx. 7 pages)

I Want You! DOJ’s New Policy on Corporate Investigations Focuses on Individuals

by Practical Law Litigation

The Yates Memo: Key Points

Deputy Attorney General Sally Quillian Yates outlined the DOJ’s new policy in a memorandum (Yates Memo) sent to all US Attorneys and to the DOJ’s Criminal, Civil, Antitrust, Environment and Natural Resources, National Security, and Tax Divisions. The memorandum applies to all future DOJ investigations of corporate misconduct and any pending matters. (Memorandum from the U.S. Department of Justice’s Office of the Deputy Attorney General on Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015).)

The Yates Memo outlines six key steps focusing on individual accountability for corporate wrongdoing, by requiring prosecutors to:

Take an “all-or-nothing” approach to cooperation credit (see All-or-Nothing Approach).
Focus on individual culpability from an investigation’s inception (see Emphasis on Individuals).
Communicate regularly with counterparts in the civil or criminal divisions handling investigations of the same company (see Increased Communication Within the DOJ).
Preserve the DOJ’s ability to pursue civil or criminal charges against individuals in any resolutions reached with the company (see Individual Releases and Immunity).
Develop a clear plan to resolve related individual cases before the statute of limitations expires when settling charges against the company (see Settlements Addressing Individual Liability).
Consider additional factors beyond an individual’s ability to pay when deciding whether to pursue a civil enforcement action against an individual (see Civil Enforcement Actions).

The changes will be codified in revisions to several guidance documents that prosecutors use when investigating corporate misconduct, including the US Attorneys’ Manual and the principles of federal prosecution of business organizations, known as the Filip Factors (see Sally Quillian Yates, U.S. Deputy Attorney General, Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing (Sept. 10, 2015) (Yates Remarks)).

For up-to-date information on this policy, see Practice Note, Criminal and Civil Liability for Corporations, Officers, and Directors: DOJ Individual Accountability Policy for Corporate Wrongdoing. For information about other DOJ corporate enforcement policies, see Practice Note, Criminal and Civil Liability for Corporations, Officers, and Directors: DOJ Corporate Enforcement Efforts and Policies.

For an overview of the liability that executives might face as a result of actions taken by corporate personnel, and practical advice to mitigate the risk of liability, see Practice Note, Criminal and Civil Liability for Corporations, Officers, and Directors.

All-or-Nothing Approach

The most significant aspect of the new policy is the DOJ’s all-or-nothing approach to cooperation credit, which applies in both civil and criminal investigations, including when companies seek reduced damages under the False Claims Act (Yates Memo, at 3-4).

For more information on settling False Claims Act cases, see Practice Note, Understanding the False Claims Act and Expert Q&A: “Ability to Pay” Settlements Under the False Claims Act.

As a condition to receiving any cooperation credit, companies must:

Investigate all facts concerning individual misconduct thoroughly and diligently.
Disclose all relevant facts to the DOJ.

(Yates Memo, at 3-4.)

Therefore, a company that selectively discloses facts concerning individual misconduct will not be entitled to any cooperation credit if the DOJ determines that additional relevant information was withheld.

Further, the Yates Memo allows prosecutors to condition a company’s plea or settlement agreement on the company’s continuing obligation of full disclosure. Accordingly, a company must provide the DOJ with any relevant information about responsible individuals even after the DOJ closes its investigation, or risk the DOJ revoking any agreements on cooperation credit. (Yates Memo, at 3-4.)

Emphasis on Individuals

Federal prosecutors are now instructed to focus on building cases against individual employees, as well as the company, from the start of an investigation. According to the Yates Memo, focusing on individuals early on:

Increases the likelihood that knowledgeable individuals will cooperate.
Maximizes the chances that the final resolution will include civil or criminal charges against culpable individuals, because it is difficult to build a case against an individual months or years after a corporate investigation has begun.

(Yates Memo, at 4.)

Companies must identify all responsible employees and turn over corresponding evidence, regardless of an employee’s position, status, or seniority. The DOJ has expressed that it will not permit companies to scapegoat low-level officials (see Matt Apuzzo & Ben Protess, Justice Department Sets Sights on Wall Street Executives, N.Y. Times, Sept. 9, 2015).

Increased Communication Within the DOJ

The Yates Memo directs attorneys in both the civil and criminal divisions who are investigating the same company to communicate with each other more regularly from the outset. The attorneys should have early and routine communications about:

Potential individual liability, including any decisions not to pursue civil or criminal charges against individuals.
Coordination of parallel investigations.

(Yates Memo, at 4-5.)

Individual Releases and Immunity

Under the new policy, civil or criminal resolutions between the DOJ and a company may not include a dismissal of charges, release of claims, or immunity for individual officers and employees. Exceptions are allowed only under “extraordinary circumstances” and each exception must be approved in writing by the appropriate Assistant Attorney General or US Attorney. (Yates Memo, at 5.)

Settlements Addressing Individual Liability

When settling with a company before completing the investigation of individual misconduct, DOJ attorneys must:

Describe in writing the current status of their investigation of individuals.
Present a clear plan to resolve the investigation before the statute of limitations expires.
Document any decisions not to pursue an action against an individual and obtain approval of that decision from the relevant Assistant Attorney General, US Attorney, or a designee.

(Yates Memo, at 6.)

As part of a company’s continuing duty to identify responsible individuals, corporate plea agreements and settlement agreements likely will include statements that the company will continue to disclose relevant information about any individuals implicated in the wrongdoing. These provisions would survive the resolution of the action against the corporate entity. (Yates Remarks.)

Civil Enforcement Actions

DOJ civil attorneys no longer may use an individual’s ability to pay a fine or penalty as a deciding factor in determining whether to pursue a civil action against that individual (though it may still be considered as one of several factors). Instead, DOJ attorneys should consider the deterrent value of a civil enforcement action and evaluate charging an individual based on whether:

The individual’s misconduct was serious.
The individual has a history of misconduct.
The offense is actionable.
The evidence will be sufficient to obtain and sustain a judgment.
The prosecution of the action represents an important federal interest.

(Yates Memo, at 6-7.)

Practical Considerations for Counsel

It remains to be seen how the Yates Memo will impact the DOJ’s investigative practices. Indeed, shortly after the Yates Memo was released, the DOJ announced a settlement with General Motors over the company’s faulty ignition switches and the numerous deaths the safety defect had caused. Yet that agreement did not identify or charge any culpable individuals. (See United States v. Saena Tech Corp., , at *25 (D.D.C. Oct. 21, 2015) (criticizing the DOJ’s agreement not to prosecute individual General Motors executives and describing the settlement as a “shocking example of potentially culpable individuals not being criminally charged”).)

Given this uncertainty, it is unclear how the DOJ’s directions as announced in the Yates Memo will impact how corporations behave or conduct internal investigations. It seems possible that the Yates Memo might inadvertently result in companies cooperating less frequently, if counsel cannot find sufficient evidence of individual misconduct to clear the DOJ’s threshold for cooperation credit.

Counsel for companies facing a DOJ investigation should consider:

The additional time and expense required in an internal investigation to identify the individuals responsible for the alleged wrongdoing. The new policy strongly incentivizes corporate boards to ensure that any investigations are robust and complete. For information on conducting an internal investigation, see Conducting Internal Corporate Investigations Toolkit.
The possibility that the DOJ may refuse to extend cooperation credit if it:
- independently identifies responsible individuals beyond those disclosed by the company;
- disagrees with the company’s assessment of individual responsibility; or
- determines that the company’s internal investigation was too narrow in scope.
How the Yates Memo will impact counsel’s interaction with company employees during an investigation and whether more robust Upjohn warnings will be required (for more information on Upjohn warnings, see Practice Note, Internal Investigations: Giving Upjohn Warnings).
The fact that cooperation does not end with the resolution of the action against the company, and that it can be revoked.
The increased likelihood of:
- concurrent civil and criminal investigations; and
- follow-on civil litigation against individuals.

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