Why it matters

Individuals are on the hot seat with the release of a memorandum from the Department of Justice (DOJ) emphasizing the importance of holding individuals liable for corporate wrongdoing. The "Individual Accountability for Corporate Wrongdoing" set forth six "key steps" for the government's new policy centered on accountability for the individuals alleged to have perpetrated corporate misconduct intended "to deter future activity, incentivize change in corporate behavior, hold the right parties responsible for their actions, and promote public confidence in the judicial system." The steps include a requirement that in order to qualify for any cooperation credit, corporations must provide to the DOJ all relevant facts relating to the individuals responsible for the misconduct and explain that criminal and civil corporate investigations should focus on individuals from the inception, and note that the government will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation. It remains to be seen whether the DOJ's new policy regarding individual accountability for corporate misconduct will be effective. Deputy Attorney General Sally Quillian Yates, the author of the memo, recognized this potential. "We make these changes recognizing the challenges that they may present," she said in a speech at the New York University School of Law following the release of the memo. "Some corporations may decide, for example, that the benefits of consideration for cooperation with DOJ are not worth the costs of coughing up the high-level executives who perpetrated the misconduct. Less corporate cooperation could mean fewer settlements and potentially smaller overall recoveries by the government. In addition, individuals facing long prison terms or large civil penalties may be more inclined to roll the dice before a jury and consequently, we could see fewer guilty pleas. Only time will tell. But if that's what happens, so be it. Our mission here is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens. It's the only way to truly deter corporate wrongdoing."

Detailed discussion

Taking a sharp turn from prior policy, Deputy Attorney General Sally Quillian Yates issued an internal memo presenting the Department of Justice's (DOJ) policy on holding individuals accountable for corporate wrongdoing.

"Crime is crime," Yates said in a speech at New York University School of Law the day after the "Individual Accountability for Corporate Wrongdoing" was released. "And it is our obligation at the Justice Department to ensure that we are holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the boardroom. In the white-collar context, that means pursuing not just corporate entities, but also the individuals through which these corporations act."

Described as a combination of new measures reflecting "policy shifts" with existing "best practices that are already employed by many federal prosecutors," the steps outlined in the memo will be applied to both criminal and civil investigations conducted by the DOJ.

  1. In order to qualify for any mitigating cooperation credit with the DOJ in a corporate investigation, corporations must provide the Department with all relevant facts relating to the individuals responsible for the misconduct. "Companies cannot pick and choose what facts to disclose," Yates wrote in the memo. "That is, to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct." The extent of cooperation credit will vary depending on factors such as the diligence, thoroughness, and speed of the internal investigation and the timeliness of the cooperation, among others. The memo also noted that there may be instances where the company's continued cooperation with respect to individuals will be necessary even after corporate liability has been resolved.
  2. The DOJ will focus on individuals from the inception of any criminal or civil corporate investigation. According to the memo, this will accomplish multiple goals. "First, we maximize our ability to ferret out the full extent of corporate misconduct," Yates explained. "Because a corporation only acts through individuals, investigating the conduct of individuals is the most efficient and effective way to determine the facts and extent of any corporate misconduct. Second, by focusing our investigation on individuals, we can increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy. Third, by focusing on individuals from the very beginning of an investigation, we maximize the chances that the final resolution of an investigation uncovering the misconduct will include civil or criminal charges against not just the corporation but against culpable individuals as well."
  3. Routine communication between criminal and civil attorneys handling corporate investigations should be standard. Recognizing the importance of parallel development of civil and criminal proceedings, the DOJ said that decisions about pursuing an investigation or not to file charges against an individual require conversation between civil and criminal counterparts. "Coordination in this regard should happen early, even if it is not certain that a civil or criminal disposition will be the end result for the individuals or the company," the memo said.
  4. When resolving an investigation with a corporation, the DOJ will not release culpable individuals from civil or criminal liability or provide immunity for individual officers or employees except under "extraordinary circumstances" or in the case of "approved departmental policy" (such as the Antitrust Division's Corporate Leniency Policy). If a settlement is reached with a corporation prior to reaching resolution with the individual wrongdoers, the ability to pursue the individuals criminally or civilly must be preserved, with any release of criminal or civil liability required to be personally approved in writing by the relevant Assistant Attorney General or U.S. Attorney.
  5. In a related point, the memo explained that DOJ attorneys will not resolve matters with a corporation absent a "clear plan" to resolve related individual criminal or civil matters prior to expiration of the applicable statute of limitations, with declinations as to such individuals memorialized and approved by the relevant U.S. Attorney or Assistant AG. Tolling agreements should be the rare exception in corporate investigations, Yates added, and all efforts should be made to resolve the matter against culpable individuals before the limitations period expires.
  6. In deciding whether to pursue civil action against an individual in a corporate investigation, DOJ civil attorneys must focus on factors beyond just the individual's ability to pay. The "twin aims" of returning the maximum amount of purloined funds to the "public fisc" on the one hand and individual accountability and deterrence on the other may at times conflict, the agency acknowledged, but the fact that an individual may not have sufficient funds to satisfy a judgment should not control the decision of whether to pursue civil action against him or her. Any assessment must also take into account factors "such as the individual's misconduct and past history and the circumstances relating to the commission of the misconduct, the needs of the communities we serve, and federal resources and priorities," Yates wrote. "Although in the short term certain cases against individuals may not provide as robust a monetary return on the Department's investment, pursuing individual actions in civil corporate matters will result in significant long-term deterrence."

To read the DOJ's memo on "Individual Accountability for Corporate Wrongdoing," click here.

To read Deputy General Yates' remarks at the NYU School of Law, click here.

This article originally appeared in Corporate Investigations & White Collar Defense Newsletter on September 21, 2015. Please click here to read the full issue.