The Yates Memo and its Six Guiding Principles
On September 9, 2015, the Department of Justice ("DOJ") issued written guidance by the Deputy Attorney General Sally Quillen Yates on investigating and prosecuting individuals involved in alleged corporate wrongdoing (the Yates Memo)1. Seemingly in response to practitioners' views that this new guidance could negatively affect companies' cooperation with DOJ in criminal and civil investigations, on September 22, 2015, Assistant Attorney General in charge of the Criminal Division, Leslie R. Caldwell, speaking at the Global Investigations Review Conference in New York, sought to clarify the practical effects of the new guidance.
The Yates Memo purports to strengthen existing DOJ practice in investigations to "combat corporate misconduct" by focusing on individual accountability and creating consistency across prosecutions. DOJ intends to target individuals for corporate wrongdoing more aggressively than ever in order to send a message and create a deterrent for repeat behavior. It believes new guidance will "increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation . . . ."
While certain aspects of the Yates Memo are said to echo and reaffirm DOJ’s best practices guidance memorialized in the U.S. Attorney's Manual that governs criminal and civil corporate investigations, the Yates Memo goes further to identify "six key steps to strengthen [the] pursuit of individual corporate wrongdoing" and to hold individuals accountable for illegal corporate conduct. These guiding principles are:
- To be eligible for any cooperation credit, corporations must provide to DOJ all "relevant facts" about the individuals involved in corporate misconduct. A corporation that fails to disclose all relevant facts, or "declines" to learn of all relevant facts, would not be eligible for cooperation credit.
- Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
- DOJ criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
- Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
- 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.
- DOJ 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 simply that individual’s ability to pay.
Although largely a restatement of existing DOJ practice to investigate the individual sources of corporate misconduct, the Yates Memo ratchets the pressure up. As framed, the new guidance will impact the manner in which internal investigations are conducted, from defining the scope of an investigation, to prioritizing and approaching witnesses and fact gathering efforts, to preparing self-disclosures.
DOJ's Broad Stroke Guidance Requires Clarification
Although by no means an exhaustive list, set forth below are issues implicated by the Yates Memo, some of which DOJ sought to provide clarification, while others remain murky and subject to fuller development through enforcement and challenge:
First, how the term "relevant" is defined and applied will likely vary from one prosecutor to the next, as will the notion of what it means to "decline" to learn of or discover all relevant facts. The Yates Memo thus creates even greater uncertainty regarding how DOJ will view an entity's self-disclosure and whether the disclosure and underlying internal investigation process will pass muster. In response to this uncertainty, AAG Caldwell, speaking at the Global Investigations Review Conference in New York, sought to provide clarification:
Companies cannot just disclose facts relating to general corporate misconduct and withhold facts about the responsible individuals. And internal investigations cannot end with a conclusion of corporate liability, while stopping short of identifying those who committed the criminal conduct.
AAG Caldwell went further to say that DOJ:
We recognize, however, that a company cannot provide what it does not have. And we understand that some investigations – despite their thoroughness – will not bear fruit. Where a company truly is unable to identify the culpable individuals following an appropriately tailored and thorough investigation, but provides the government with the relevant facts and otherwise assists us in obtaining evidence, the company will be eligible for cooperation credit. We will make efforts to credit, not penalize, diligent investigations. On the flip side, we will carefully scrutinize and test a company's claims that it could not identify or uncover evidence regarding the culpable individuals, particularly if we are able to do so ourselves.
Thus, an entity that becomes aware of potential misconduct but does not know who might be a responsible actor must define the scope of the investigation sufficiently broadly to make it more likely that responsible parties will be identified if the company hopes to receive cooperation credit. Questions remain regarding how far must an entity go in its effort to collect "all relevant facts" and whether certain actions taken by an entity (provision of separate counsel for certain employees, for instance) which may hamper the collection of facts and testimony, will negatively affect an entity's ability to obtain cooperation credit.
Second, there are likely to be implications of this new guidance on preservation of the privilege and work product protections. On this point, AAG Caldwell remarked that DOJ will not seek waiver of the privilege or work product protections as a condition of obtaining cooperation credit. There remain questions, however, about whether affirmatively preserving the attorney-client privilege or work product can, in some circumstances, be viewed as preventing the full disclosure of "all relevant facts" and, in turn, undermining a company's ability to obtain cooperation credit.
Third, the Yates Memo calls for increased communication and coordination between the DOJ's civil and criminal attorneys. Parallel civil and criminal proceedings give rise to a panoply of issues including risk of self-incrimination, adverse inference in civil proceedings because of the invocation of the privilege, and other serious negative collateral consequences. Companies and individuals who walk the line between disclosure obligations and cooperation must rely on the expertise of counsel to guide them through the obstacles of these parallel proceedings.
Fourth, the Yates Memo directs that government attorneys should focus on individuals throughout an investigation and should have a plan to resolve individual liability separately from corporate liability. This "divide and conquer" approach should inform and guide private counsel in their representation of corporate entities and individuals. A potential implication is that the Yates Memo actually chills corporate investigations due to fear of implication among employees and high level executives. That the Yates Memo encourages the pursuit of individual actions in civil corporate matters even if there is no ability to pay a judgment further reflects a policy shift with potential substantial ramifications. The issues effecting companies created by this new policy requires deft handling by experienced counsel.
"An Ounce of Prevention Is Worth A Pound of Cure"
The old adage "an ounce of prevention is worth a pound of cure" remains true. There is no adequate substitute for routine, proactive planning, preparation and training to avoid the enforcement situations as envisioned by the Yates Memo. A company should examine its decision-making approach to self-report or cooperate, and counsel needs to adapt to the new focus on individual accountability.
When problems emerge, entities must be prepared to act promptly, and consult with counsel experienced in handling government investigations and white collar matters to ensure that any action taken and disclosures made to the government are both responsive and appropriate. Entities that develop and maintain early, open and continuous communications with government counsel will be far better positioned to navigate this new investigation and enforcement minefield and generate the best prospect for a favorable outcome, despite the persistent questions regarding the guidance itself.