The September 9, 2015 memorandum issued by Deputy Attorney General Yates makes clear that the Government intends to focus its investigative spotlight on possible False Claims Act violations by individuals, in addition to companies. “One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” As the leverage for this new focus, corporations are advised that to be eligible for “any” cooperation credit, they must provide “all relevant facts” about individuals involved in the misconduct. As Ms. Yates said in her public remarks the day after the memo was released: “It’s all or nothing.”
The Yates Memo raises important questions concerning how the new approach will affect Government contractors’ actions under the Mandatory Disclosure Rule. Does DOJ’s focus on individuals mean that the practices and procedures companies have developed for compliance with the Mandatory Disclosure Rule must change? To what extent should individuals be the focus of internal investigations and disclosures in order for a contractor’s disclosure to be acceptable?
Since the promulgation of the Mandatory Disclosure Rule, the implementing FAR clause has defined “full cooperation” to mean “disclosure to the Government of the information sufficient for law enforcement to identify the nature and extent of the offense and the individuals responsible for the conduct.” FAR 52.203-13(a). Contractors thus always have been required—as a condition of avoiding suspension or debarment—to cooperate and disclose “credible evidence” of the violation of criminal statutes in Title 18 involving fraud, conflict of interest, bribery or gratuity, as well as violations of the civil False Claims Act. Contractors are aware that such mandatory disclosures are routinely sent to and reviewed by attorneys at DOJ. Arguably, the Yates Memo should make no difference to a contractor’s ethics and compliance program or to its obligations under the Mandatory Disclosure Rule. The Inspectors General and Suspension and Debarment Officials (SDOs) have not issued anything suggesting that their expectations regarding the operation of the Mandatory Disclosure Rule have changed.
However, the tone of the Yates Memo and her subsequent public remarks suggest that the Government ultimately may take a different approach. The Mandatory Disclosure Rule recognizes the Government’s discretionary authority to suspend or debar a contractor, as well as the judgment SDOs must exercise about the effectiveness of a contractor’s compliance program, the timeliness of its reporting, and the credibility of the evidence. The Rule takes into account the agency’s ongoing relationship with the contractor. The Rule is not just about targeting wrongdoing, but also about effective ethics and compliance programs to protect the integrity of public procurement.
The Yates Memo appears to have a different purpose—identification of individual wrongdoers for punishment. “Both criminal and civil attorneys should focus on individuals from the inception of the investigation.” The Yates Memo identifies three benefits of this focus:
- ferreting out the “full extent” of corporate misconduct;
- increasing the likelihood that individuals with knowledge will cooperate and provide information against individuals higher up the corporate hierarchy; and
- maximizing the chances that the final resolution of an investigation will include civil or criminal charges against individuals as well as the corporation.
Although the Yates Memo does not single out Government contractors, it raises serious questions regarding the ongoing operation of the Mandatory Disclosure Rule for both contractors and agencies. Will it be necessary for contractors to revise practices under the Mandatory Disclosure Rule to target individual misconduct such that it would change the approach to identifying reportable events? Will the Government now demand that even in the most mundane of disclosures—and even for contractors with strong ethics and compliance programs—individuals be the focus of an internal investigation and disclosure?
During her public remarks, Ms. Yates said that the “rules have just changed.” She explained that if a corporation wants “any cooperation credit,” the corporation “will need to investigate and identify the responsible parties, then provide all non-privileged evidence implicating those individuals.” And, the Deputy Attorney General made clear that this applies to civil investigations pursuant to the False Claims Act. She was similarly clear about DOJ’s intent to pursue civil actions against corporate wrongdoers without regard to an individual’s ability to satisfy a monetary judgment. In other words, the fact that it is pursuing a civil remedy will not make a difference with respect to DOJ’s intensity of pursuit.
The questions about the potential impact on the relationship between buying agencies and contractors under the Mandatory Disclosure Rule are potentially momentous. Among other potential problems, DOJ could become more involved in agency judgments about how to respond to contractor disclosures, potentially requiring contractors to conduct detailed investigations of employees in connection with every disclosure. Will the relationship between the buying agency and its contractors shift more toward identifying individuals for punishment? Hopefully, agencies will provide guidance about their expectations.