Deputy Attorney General Sally Yates issued a September 9, 2015 memorandum directing top DOJ employees, including all U.S. Attorneys, to target individuals for both criminal and civil prosecution. This new directive is aimed at “combat[ting] corporate fraud . . . by seeking accountability from the individuals who perpetrated the wrongdoing.” It likely is the result of criticism that the Holder Justice Department has obtained billion dollar judgments from corporations, but has prosecuted few individuals for the alleged fraud associated with the economic downturn, and makes it clear that prosecutors are to punish individuals first, before resolving any corporate charges. This memo affects the way corporations must respond to suspected wrongdoing, how and whether they conduct internal investigations, and how they negotiate with the government. (Document available here)
The memo sets forth six “steps that should be taken in any investigation of corporate misconduct.” The first requirement is the one that will likely have the greatest effect on corporations: “To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.” The emphasis on “any” is in the original. “[T]o be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct.” This applies both to criminal and civil investigations, such as False Claims Act investigations.
Thus, this memo confirms that the Department wants the corporation itself to act as the initial police investigator, ferreting out individual wrongdoers and disclosing to the government what it has found. If a corporation fails to do so, under this new policy, it is not eligible for any cooperation credit. The memo directs prosecutors, if at all possible, not to resolve the corporate case until they receive “as much information as possible about responsible individuals.”
The second step is to ensure that both criminal and civil investigations “focus on individuals from the inception of the investigation.” According to the memo, by doing so, the government will be able to “ferret out the full extent of corporate misconduct,” will increase the likelihood of finding knowledgeable individuals who will cooperate and “provide information against individuals higher up the corporate hierarchy,” and increase the chance of charging not only the corporation, but also individuals.
The third requirement is for Department criminal and civil attorneys to be in routine communication when handling corporate investigations. Essentially, the Department is directing its lawyers to ensure that some kind of case is brought against an individual wrongdoer. This step may to lead to discovery issues for the individual defendant who is prosecuted – there may be much more Brady information available and there may be a much larger universe of documents that must be reviewed by the government for production to the defense if both a civil and criminal investigation was ongoing. At the same time, this strategy appears to encourage the more free ranging civil investigation concurrent with or even before the potential criminal investigation where Fifth Amendment rights can be claimed.
The memo then states: “Absent extraordinary circumstances, no corporate resolution will provide protection from criminal liability or civil liability for any individuals.” Although the memo carves out the Antitrust Division’s Corporate Leniency Policy and any similar approved policy, it makes it clear that individuals are on their own and may not be protected by any corporate resolution of charges.
The fifth step requires Department attorneys to have a plan with respect to individuals involved in the corporate wrongdoing – either charge them criminally, civilly or memorialize the decision not to do so in a declination memo.
Finally, the memo directs civil attorneys to focus not just on corporate recoveries, but also on individuals, even if “[p]ursuit of civil actions against culpable individuals should not be governed solely by those individuals’ ability to pay.” Thus, even though the government might not be able to recover any money, Department attorneys should consider bringing charges against individuals.
This directive to DOJ attorneys significantly increases the stakes for companies that decide to cooperate with the government – a corporate bloodletting will not be enough; individual sacrifices will be expected. This directive will affect how corporations respond to allegations of corporate misconduct. If a company decides to cooperate with the government, the company must undertake a review of the misconduct with individuals in mind. Were there culpable individuals? How far up the chain did it go? Who else was potentially responsible for the decisions? Those are the kinds of questions that the government will expect the internal investigation to have asked and answered. There will likely be less tolerance of noncommittal answers or acceptance of perceived light punishment by the company. Although it does not expressly require waiver of attorney-client privilege to gain cooperator status, it puts more pressure on the company to divulge attorney-client privileged information if such information could assist the prosecution of individuals.