The US Deputy Attorney General, Sally Quillian Yates, recently released a memorandum (Yates Memo) in which she outlined a new strategy to help combat corporate fraud and other wrongdoing. The strategy? Seeking accountability from the individuals who perpetrated the wrongdoing. The Yates Memo, however, acknowledges that pursuing individuals has in the past proved to be challenging, particularly in large corporations where responsibility is diffuse and decisions are made at various levels in the organization. The solution? Going forward corporations that are under investigation will be required to identify all individuals involved in or responsible for the misconduct at issue.
In order to secure this information from corporations, the Yates Memo instructs counsel not to provide any credit to corporations for cooperating with an investigation if they do not turn over the information. Why is this important? Judges in US federal courts are required to consider the sentencing guidelines issued by the Department of Justice when imposing sentences for breaches of criminal or federal laws. The guidelines are like a math formula with points added for certain attributes of the crime and aggravating factors and points deducted for mitigating factors. The final score is used to determine a suggested sentence. For example, corporations that had an effective ethics and compliance program in place at the time of the offence, receive credit in the formula even though their program did not prevent the actual offence.
Similarly, corporations that “fully cooperated in the investigation” receive credit in the formula. However, the accompanying commentary to the guidelines provides that to fully cooperated a corporation should disclose all pertinent information known by it, including sufficient information for law enforcement personnel to identify the nature and extent of the offense and the individual(s) responsible for the criminal conduct. The Yates Memo states that going forward no credit will be given to a corporation that does not identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority. What’s more, the Yates Memo states that this principle will apply both in respect of criminal matters and civil penalties. The reference to civil penalties suggests that this approach will also influence the Department’s attitude towards the settlement of civil actions.
Of course, the US sentencing guidelines do not apply in Canada. However, the courts in Canada have adopted a similar approach to sentencing, at least with respect prosecutions under the Corruption of Foreign Public Officials Act. For example, the extent to which the defendants had an effective compliance program has been cited as a mitigating factor in assessing the sentence that was imposed. It may not be too much of a leap for our courts to adopt a similar attitude towards corporate cooperation.
We also know that the US Foreign Corrupt Practices Act has a long reach and many Canadian corporations are subject the Act in respect of their international operations. Clearly, prosecutions under the Act are one of the areas that the Yates Memo was meant to address.
What does this mean for Canada
A hallmark of the financial services sector in Canada has been its cooperative approach to regulation. The goal of supervisors is typically remediation rather than punishment. Of course, Canada is not an island and approaches like that advocated in the Yates Memo cannot be completely ignored, particularly with respect to laws such as the Corruption of Foreign Public Officials Act where Canada’s record is subject to international scrutiny.