Last week, perhaps in response to criticism of the Justice Department for failing to hold individuals accountable in its civil and criminal cases arising out of the financial crisis, Deputy Attorney General Sally Quillian Yates issued a policy memorandum for federal prosecutors (the Yates Memo or Memo1) stating, among other things that 1) companies under investigation may not earn credit for cooperation unless they first expose corporate executives or employees who engaged in wrongdoing; and 2) federal prosecutors may not resolve a corporate criminal or civil case without a clear plan to prosecute responsible individuals or a written justification for not charging individuals (and approval from the Assistant Attorney General or US Attorney supervising the case). Yates reiterated the new guidance during a speech at New York University Law School the next day.2
Some of the Memo's guidelines are "institutional policy shifts," while others merely formalize existing practices.3 However, the new policy carries the potential to make it more difficult for companies to conduct internal investigations and offer meaningful cooperation to the Department of Justice (DOJ). Requiring prosecutors to focus on individual cases alongside corporate resolutions could also result in either unwarranted or unsustainable prosecutions. At the same time, the policy may induce the government to consider more carefully whether a corporate case should be brought when prosecutors are forced to think about the obstacles to a winnable case against individuals. These concerns and other considerations are highlighted below, as we examine the Memo's key takeaways.
Companies Must Provide All Relevant Facts About Individuals Involved in Corporate Misconduct in Order to Be Eligible for Cooperation Credit
A. The New "All or Nothing" Cooperation Rule
The first and perhaps most significant guideline in the Yates Memo directs that, "to be eligible for anycredit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue . . . and provide to [DOJ] all facts relating to that misconduct."4 The Memo goes on to state that "[o]nce a company meets the threshold requirement of providing all relevant facts with respect to individuals, it will be eligible for consideration for cooperation credit." As Yates put it, the new rule is "all or nothing."5
By making identification of all responsible individuals and providing all related facts a precondition to any cooperation credit, the Memo goes beyond pre-existing DOJ policy contained in the Principles of Federal Prosecution of Business Organizations, or "Filip Memo."6 Previously, a company's willingness to identify relevant actors was listed as only one factor in "gauging the extent of the corporation's cooperation."7 Thus, until now, companies could receive partial cooperation credit "by voluntarily disclosing improper corporate practices, but then stop[ping] short of identifying who engaged in the wrongdoing and what exactly they did."8
B. Implications of the New Rule
The new policy may merely be intended to condition cooperation credit on the company making all facts concerning individuals involved in the relevant corporate decision-making available (such as by giving the government access to witnesses and documents the company controls), so that the government can then reach a determination regarding those individuals' culpability. That proposition would not be particularly new or controversial. Full disclosure of all facts related to wrongdoing, including facts specific to individuals, has always been a central consideration in determining whether to charge a corporation and what penalty to seek.
On the other hand, if the Yates Memo is intended to condition cooperation credit on the company identifying specific employees, officers or directors as culpable, it would constitute a departure from current practice and raise significant concerns from the defense perspective.9 There are many cases in which a company may cooperate vigorously in an investigation-and may even resolve the matter by pleading guilty or entering into some other agreement with the government-while still contesting the conclusion of individual liability. For example, under criminal statutes that require the government to prove criminal intent, there may be strong disagreement about whether the conduct at issue is the result of the knowing or willful conduct of any corporate actor. Under such circumstances, a company may not be able to say in good faith that any individual committed an offense (and could reasonably assert that it committed no offense either, in the absence of a culpable corporate official). Requiring a company to label particular individuals as culpable in order to qualify for any cooperation credit, as opposed to requiring evidence from which DOJ can draw its own inferences, could undermine a company’s ability to cooperate while maintaining legitimate defenses.
Moreover, it has previously been possible to offer substantial and meaningful cooperation by doing things other than making "disclosures." For example, a company may significantly advance a DOJ case by making available foreign witnesses and documents beyond the reach of the US grand jury. Read broadly, the Yates Memo could discourage such alternative forms of cooperation because a company will not receive any credit for these efforts unless it also discloses culpable individuals.
The new focus on disclosure of individual culpability also could impede the company's efforts, typically through outside counsel, to discover all of the relevant facts surrounding the conduct at issue. Effective internal investigations depend on counsel's ability to access and receive cooperation from knowledgeable employees, officers, and directors. If these individuals know that the company is under pressure to identify some among them as culpable, they may be more reluctant to cooperate in this process. Individuals may insist, and companies may demand, that individuals be counseled personally by separate counsel earlier or more frequently than is typical in internal investigations prior to the Yates Memo. And those individuals cannot be compelled to cooperate, even if there is a potential negative impact on their employment or other relationship with the company. Thus, a broad reading of the Yates Memo could undermine one of its central purposes: obtaining "all relevant facts about individual misconduct."10
Finally, company counsel will have to navigate the difficult position of advising the company's top executives on the information learned through internal investigation and potential defenses while simultaneously evaluating whether to identify those same executives as culpable. This difficulty will require inside and outside counsel to be increasingly vigilant about corporate governance and reporting issues.
Government Investigations Should Focus on Individuals from the Beginning
The Yates Memo states that "[b]oth criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct."11 A primary goal of this change, and the new policy as a whole, is more effective pursuit of what the Memo describes as "high-level executives, who may be insulated from the day-to-day activity in which the misconduct occurs."12 (One might question whether, as a general matter, a person who is "insulated from the day-to-day activity" has committed any offense absent evidence that she either directed or authorized the criminal act. In the typical case, such a person may just be innocent).
Criminal and Civil Attorneys Should Routinely Communicate with One Another
DOJ has long had a parallel proceeding policy requiring criminal and civil prosecutors to coordinate their activities in white collar cases.13 The Yates Memo's reiteration of this policy is not new, except to the extent that it clarifies that such coordination should include pursuit of individuals.
Unless There Are Extraordinary Circumstances, Corporate Resolutions Will Not Include Protection from Liability for Any Individuals
The Yates Memo provides that, in most corporate resolutions, individuals should be afforded immunity, dismissal of charges, or release from civil claims only in "extraordinary circumstances" and, even then, only when "personally approved in writing" by the United States Attorney or the relevant Assistant Attorney General.14
Except in limited circumstances that the Yates Memo excludes from its new rule, most notably the Antitrust Division's Corporate Leniency Policy, criminal corporate resolutions do not resolve individual liability in existing practice. Thus, this provision works no change from existing criminal policy. Moreover, the existing, standard DOJ civil settlement agreement release includes exclusions for potential criminal liability for any person or entity. Corporate civil settlement agreements, however, frequently include releases from civil liability for the company and its officers, directors, and employees. Thus, the new policy is a departure from existing practice in this regard.
Corporate Cases Should Not Be Resolved Without a Clear Plan to Resolve Individual Cases; Declinations for Individuals Must be Memorialized and Approved
As noted above, the new policy states that a corporate case may not be resolved without a clear plan to charge individuals. Yates repeatedly noted in her remarks that delays in corporate investigations should not delay resolution of related individual cases, so that "[i]n most instances, . . . [DOJ] resolve[s] cases with individuals before or at the same time that [it] resolve[s] the matter against the corporation."15 If a prosecutor decides not to bring charges against individuals involved in corporate misconduct, the reasons for that decision must be memorialized and approved.16
While this policy change arguably pushes prosecutors to charge individuals where they otherwise would not have done so, there may be an unintended benefit for companies. As noted above, there is frequently a serious question in government investigations as to whether any individual at the company has acted with the intent required to justify charging the company criminally at all. By requiring that the government focus from the outset on identifying employees against whom criminal or civil charges are readily provable, the Yates Memo may cause some retrenchment in cases where that exercise results in no potential targets. Defense counsel can point out that if there exists no viable case against an employee, a company prosecution is unjustified. Prosecutors may resist closing corporate criminal investigations where they can point to no company employee who committed a crime, but the logical conclusion from the new guidance is that a focus on individual culpability should shine some light on the absence of company culpability where the government cannot prove that a single corporate actor violated the law.
Civil Attorneys Should Focus on Individuals, Regardless of their Ability to Pay a Civil Judgment
DOJ civil attorneys often determine which individual defendants to name in a case based on the corporate conduct at issue, the individual's connection to the conduct and the individual's ability to pay a civil judgment.
The Yates Memo now requires civil attorneys to look beyond the individual's ability to pay any resulting judgment and to consider the goals of holding individuals accountable and deterring individual misconduct.17 Thus DOJ attorneys are now encouraged to file individual cases more frequently than they might otherwise have done.
Deputy Attorney General Yates acknowledged that deemphasizing ability to pay may reduce the government's recovery in some cases, but argued that "value cannot always be measured in dollars and cents."18 An equally significant concern, however, is that individuals who have meritorious defenses to the charges brought against them, but limited resources, will be forced to choose between costly litigation or accepting a default judgment that cannot be collected. Neither result would further societal interests. It remains to be seen whether DOJ attorneys apply the Yates Memo guidance in a manner that alleviates or exacerbates this concern.