The US Department of Justice has issued a memorandum to all of its prosecuting Divisions, directing changes to the principles applied by DOJ in prosecuting civilly or criminally individuals who engage in corporate misconduct. Press attention to the memorandum has focused on the application of those principles to Wall Street investment and banking firms, due to the absence of individual prosecutions despite several massive settlements with large banks over serious financial misconduct. However, the principles apply broadly to all DOJ enforcement activities, including environmental enforcement. Their application may affect a company’s ability to obtain favorable treatment for voluntary disclosure, and may also impact how companies handle separate representation for their employees.
The guidance in the memo lists six key principles to be applied in the Department’s effort to strengthen pursuit of individual corporate wrongdoing: 1) requirements to qualify for cooperation credit; 2) focus on individual conduct from the inception of the investigation; 3) coordination of criminal and civil investigations; 4) limitations on release of individual liability in a corporate settlement; 5) consideration of individual liability issues at the time of a corporate settlement; 6) civil liability claims against individuals.
In general, the six principles are an effort to assure that the potential for individual liability is not forgotten in the pursuit of a large settlement with the company. The impetus for that focus is the view that the potential for individual liability can provide a much stronger incentive for compliance than corporate fines, which may carry little or no stigma, and are often treated as a cost of doing business.
The first principle, eligibility for cooperation credit, requires that the company cooperate completely with respect to individuals in order to qualify, with DOJ directed to aggressively pursue information regarding the involvement of individuals in the violation to the extent not protected by privilege. It will be interesting to see how that obligation will operate in terms of the willingness of employees to cooperate in internal investigations, and in terms of corporations providing separate legal counsel, particularly in light of the sixth principle, discussed below.
The fourth principle, limits on release of individual claims in connection with settlement of corporate claims, has not often appeared in environmental litigation. E.g., both individual and corporate criminal claims were pursued by DOJ in connection with the Deepwater Horizon Spill, with company settlements not providing for individual immunity. However, in the settlement of Migratory Bird Treaty Act criminal claims against a wind farm operator in Wyoming, the US did represent in the consent decree with the company that it did not intend to prosecute any individuals for the alleged or related conduct. United States v. Duke Energy Renewables, CR. 13-CR 268 R (D. Wyo Nov. 7, 2013).
The application of the sixth principle may be the one to watch most closely. It directs civil attorneys to consider taking action against individuals as well as the corporation, even where the circumstances of the individual indicate any penalty would not be recovered. Taking into account the seriousness of the misconduct and the strength of the federal interest, the attorney should weigh whether the lack of a short term recovery of funds is offset by the significance of long-term deterrence resulting from prosecution of the individual.
How aggressively DOJ will apply these principles in the context of environmental compliance remains to be seen. However, the obligation to turn over information on individual actors to obtain cooperation credit, along with the potential for individuals to be held civilly liable along with the company, may result in significant changes in the calculus performed by a General Counsel and by individual employees in making compliance decisions, and assessing their position when litigation looms.