In a memo issued to federal attorneys nationwide, Deputy Attorney General Sally Quillian Yates recently announced a new policy of aggressively pursuing individual corporate wrongdoers, and not just corporations, for fraud and other misconduct. The directive represents a major shift in policy at the Department of Justice (DOJ) and creates an incentive for companies to turn in high-ranking executives who engage in corporate misconduct. The policy applies to all future investigations of corporate wrongdoing, both criminal and civil, in addition to matters pending as of the date of the memo (September 9, 2015) where it is practicable to do so.
The new measures, set forth below, describe a new enforcement scheme that comes about amid continuing criticism that the DOJ has focused too much on squeezing record-breaking settlements out of companies while failing to pursue individual corporate wrongdoers and holding them accountable. While some of the steps reflect current policy, others have been added to give federal attorneys additional leverage over corporations that may seek to protect high-level executives from civil penalties or prosecution.
The new guidelines are as follows:
- To be eligible for any cooperation credit, corporations must provide to the DOJ ALL relevant facts about the individuals involved in corporate misconduct.
In order to be eligible for any credit for cooperation with a federal investigation, a company must identify all individuals involved in or responsible for the misconduct that is the target of the investigation, regardless of their position or status in the company. Companies may not “pick and choose” what facts will be disclosed, but must present complete factual information in order to be considered for cooperation credit. As in the past, the extent of the cooperation credit will be gauged by factors such as the timeliness of the cooperation, diligence, thoroughness and the speed of the internal investigation.
- Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
This portion of the memo seeks to maximize the ability of the DOJ to discover the full extent of individual wrongdoing in any investigation and incentivize those persons with knowledge of the corporate misconduct to cooperate with the investigation and provide information against other individuals higher up in the corporate hierarchy. The DOJ expects that by focusing on individuals early-on in the investigative process that it “will maximize the chances that the final resolution of an investigation uncovering the misconduct will include civil or criminal charges against not just the corporation but against culpable individuals as well.”
- Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
As an internal matter, the DOJ is encouraging increased cooperation between its civil and criminal arms during their respective investigations of corporate misconduct to increase the likelihood of individuals being held to account either civilly, criminally, or both. The DOJ believes that increased consultation between the two groups will lead to a greater likelihood that the full range of penalties, be they civil or criminal in nature, will be brought to bear in every instance of corporate misconduct.
- Absent extraordinary circumstances, no corporate resolution will provide protection from civil or criminal liability for any individuals.
In those instances where the DOJ reaches a resolution with a company prior to concluding a full investigation of the individuals involved, DOJ attorneys, absent extraordinary circumstances, must now refrain from agreeing to dismiss charges against, or provide immunity for, individual corporate officers or employees. Corporate settlement agreements will no longer provide a vehicle for culpable persons to avoid penalties under either the civil or criminal statutes regarding corporate misconduct.
- Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
Simply put, this section of the memo requires DOJ attorneys to explain why cases against individuals couldn’t be made by the time the statute of limitations expires and further dictates that any decisions not to charge individuals involved in misconduct must be approved by the U.S. attorney or the top Justice Department official overseeing the investigation. As with the point made directly above, this guidance is designed to promote the DOJ’s goal of holding individual corporate officers or employees to account for wrongdoing, regardless of any prior resolution of claims against the corporation itself.
- 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.
This portion of the memo reflects the DOJ’s desire to not only punish wrongdoing by companies, but to increase both individual accountability and deter individual misconduct. Rather than focusing on whether or not a culpable individual has the ability to pay a hefty penalty, DOJ attorneys “should consider factors such as whether the person’s misconduct was serious, whether it is actionable, whether the admissible evidence will probably be sufficient to obtain and sustain a judgment, and whether pursing the action reflects an important federal interest.”
The DOJ memo represents a clear warning to corporate officers and executives nationwide that the days of escaping federal penalties and prosecutions for wrongdoing are over. The focus has shifted away from levying hefty fines on corporations and turned to the aggressive pursuit of individuals whose actions run afoul of federal laws. Businesses must be prepared to comply immediately and effectively with any civil or criminal investigation should federal attorneys initiate an investigation.