On September 9, 2015, Sally Quillian Yates, the Deputy Attorney General, issued a memorandum announcing the Department of Justice’s (DOJ) new guidelines regarding its intensifying focus on individual wrongdoers in the context of corporate misconduct (Yates Memo). The Yates Memo is the latest in a line of pronouncements by the DOJ concerning the framework federal prosecutors must use in determining whether and how to charge corporations and their employees in criminal cases. It is the most significant ever for corporate officers and employees. As Ms. Yates explained in a September 10, 2015 speech at New York University’s program on corporate compliance and enforcement, the new guidelines “are institutional policy shifts that change the way we investigate, charge, and resolve cases.”
Six directives comprise the core of the Yates Memo, which applies to both criminal and civil matters: (i) to be eligible for any cooperation credit, corporations must provide the DOJ with all relevant facts about the individuals involved in corporate misconduct; (ii) both criminal and civil corporate investigations should focus on individuals from the inception of the investigation; (iii) criminal and civil attorneys handling corporate investigations should communicate routinely with one another; (iv) absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals; (v) 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; and (vi) 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.
While a number of the above directives relate to the manner in which DOJ personnel communicate and interact with one another (for example, criminal and civil DOJ attorneys must now promptly and routinely consult with each other concerning pending investigations), the directives focusing on cooperation credit and corporate settlements are the most important. The Yates Memo effectively codifies prior public statements by DOJ officials that they intend on taking a tougher stance on prosecuting all levels of corporate employees. As Ms. Yates explained, “We cannot allow the flesh-and-blood people responsible for misconduct to walk away, while leaving only the company’s employees and shareholders to pay the price.”
Critically, to receive any cooperation credit under the new guidance, corporations must disclose all relevant facts concerning individual misconduct. This is an important shift from the fourth factor – “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents” – stated in the April 2008 “Principles of Federal Prosecution of Business Organizations” issued by then-Deputy Attorney General Mark Filip and since incorporated into the U.S. Attorney’s Manual. Previously, corporations could receive “partial” credit even if disclosures regarding individual misconduct were incomplete. Cooperation is now an all-or-nothing proposition.
Importantly, Ms. Yates made it clear that corporations cannot plead ignorance: “If they don’t know who is responsible, they will need to find out. If they want any cooperation credit, they will need to investigate and identify the responsible parties, then provide all non-privileged evidence implicating those individuals.” This cooperation requirement will be ongoing, as Ms. Yates explained: “Corporate plea agreements and settlement agreements will include a provision that requires the companies to continue providing relevant information to the government about any individuals implicated in the wrongdoing. A company’s failure to continue cooperating against individuals will be considered a material breach of the agreement and grounds for revocation or stipulated penalties.”
The Yates Memo includes additional guidelines on the interplay between corporate settlements and individual liability. According to the new guidelines, before finalizing a settlement with a company during an ongoing investigation into individual liability, DOJ attorneys must provide a memorandum to their supervisors that details potentially liable individuals, the current status of the investigation regarding their conduct and a plan to bring the matter to resolution prior to the end of any statute of limitations period. The Assistant Attorney General or U.S. Attorney whose office handled the investigation, or their designees, must approve any declinations. In addition, absent “extraordinary circumstances,” corporate settlements may not include agreements to dismiss charges or release claims against, or provide immunity for, individual officers or employees.
Corporate internal investigations into possible misconduct may now have to be tailored to the all-or-nothing approach of the Yates Memo. Just as the government will now focus on individual misconduct at the outset of the investigation, corporations must do the same in their internal investigations of potential misconduct. Corporations may have to search wider and dig deeper due to the severe consequences of not disclosing to the government all relevant facts of individual misconduct. The company and outside counsel must now scrutinize the results of internal investigations even more closely because of the difficulties in determining at an early stage whether conduct is criminal. The all-or-nothing cooperation required under the Yates Memo for securing cooperation credit may well result in more companies determining that self-disclosure and cooperation with the government are not in the company’s best interest and deciding instead to remain silent or defend against the government’s case.
The guidelines articulated in the Yates Memo show the seriousness of the government’s intentions to prosecute responsible individuals for white-collar crimes, and companies should start preparing for this intensified focus now. Companies should reevaluate their ethics and compliance programs to ensure that they are robust and effective in preventing and detecting criminal conduct. Under these circumstances, the best defense is to proactively enforce a robust compliance program – one that includes regular auditing and testing of business practices – so that the company can stay one step ahead of the game and minimize the potential for misconduct in the first place.