The Department of Justice (DOJ) recently announced a new initiative aiming to hold individuals, and not just corporations, accountable for corporate misconduct. The Yates Memorandum responds to criticism that the DOJ collects record fines from major corporations, but fails to punish the executives who actually precipitate the wrongdoing.(1) The lingering question is whether the Yates Memorandum will ultimately advance the DOJ's law enforcement interests or hinder them. This update examines the unintended consequences that may result for companies, employees and the DOJ itself.

Unintended consequence 1: companies stop cooperating

One of the primary reasons stated for the Yates Memorandum is to encourage full cooperation from companies, but what happens if some companies instead decide not to cooperate? After all, to qualify for any cooperation credit, the Yates Memorandum requires that corporations provide "all relevant facts about individuals involved in corporate misconduct". However, what constitutes "all relevant facts" in this regard is debatable and companies may be concerned that it is now easier than ever for the DOJ to contend that information provided was too little or too late.

This unintended consequence may become more likely for several reasons and in several instances. First, the scope of an investigation that is sufficient to satisfy the DOJ is unclear when no culpable individual is identified, or at least not at a sufficiently high level within the company. In such cases, companies may be hesitant to voluntarily disclose the results of an investigation. Although the DOJ has stated that it is not expecting companies to "embark upon a multimillion-dollar investigation every time they learn about misconduct", it has also stated that companies will not be allowed to "plead ignorance" about who is responsible if they want cooperation credit. Companies may determine that the risks associated with non-disclosure outweigh those inherent to a multimillion-dollar investigation and voluntary disclosure when questions remain over individual culpability.(2)

Second, in cases where a company worries that it will not agree with the DOJ's anticipated theory of the case, it may decide not to cooperate. For instance, a company may be loath to willingly provide information that it believes the DOJ will say implicates one of its employees where the company disagrees. Because the Yates Memorandum effectively eliminates the potential for partial cooperation credit, if such a disagreement is foreseeable from the start, this could cause a company to rethink cooperating.

Third, although the DOJ has stated that it will not ask companies to waive privilege in determining cooperation credit, what happens if most of the relevant facts pertaining to individual culpability are legally privileged? Companies that refuse to waive privilege may be at least at an implicit disadvantage later when prosecutors perform the cooperation calculus.

Compounding all of this is the fact that individual employees and executives are now aware that the DOJ will increasingly be targeting individuals for prosecution and may thus be less likely to assist the company in determining culpability. Although US corporations can typically require employees to participate in an investigation or risk losing their jobs, employees who fear that they could be a DOJ target may increasingly decide to resign rather than provide incriminating information. Others will likely engage their own attorneys, who may take an adversarial approach to the fact finding to protect clients' interests – for instance, by shutting down certain lines of questioning during interviews with corporate counsel. Such representations may be at odds with the company's interests in determining the source of wrongdoing and ultimately securing cooperation credit.

In combination, the challenges and uncertainties of securing cooperation credit make self-reporting potential misconduct a riskier proposition. Corporate counsel must carefully weigh these risks in the coming months.

Unintended consequence 2: prosecutors feel pressure to pursue cases

The Yates Memorandum changes the atmosphere at the DOJ, and the resulting pressure on line attorneys to find and prosecute responsible individuals may have an unintended – and potentially dangerous – consequence. Although some may say that the Yates Memorandum is merely a continuation of existing policy, others may view it as a source of external pressure on prosecutors in their discretion to bring appropriate cases.

The Yates Memorandum dictates that corporate cases may not be resolved "without a clear plan to resolve related individual cases before the statute of limitations expires", and that any "declinations as to individuals in such cases must be memorialized". It further states that civil actions against individuals will be pursued "even if those wrongdoers don't have the financial resources to satisfy a significant money judgment". Thus, there will be increased transparency, and likely scrutiny, surrounding declined individual prosecutions. Additionally, at least one persuasive reason not to pursue charges (ie, inability to pay a civil fine) is now effectively unavailable.(3) The combination of these elements may favour prosecution in instances where the prosecutor otherwise would not, and indeed should not, move forward with a case.

Unintended consequence 3: DOJ may need to re-evaluate resources

The DOJ acknowledges that individuals facing long prison terms or large civil penalties are much more likely to roll the dice before a jury, which could lead to more trials, fewer guilty pleas and more appeals. Although there is a risk of a bad result for the DOJ in terms of trial outcome, negative legal precedence or inability of individuals to pay the prescribed penalties, there is also the reality that the DOJ's resources are not infinite. The policy of prioritising the prosecution of individuals is resource intensive, requiring extensive preparation and expenditure to take more cases to trial.

One may argue that the DOJ is doing fine in the resource department. After all, in fiscal year 2014 it recovered more than $24 billion in collections from civil and criminal actions – or more than eight times the total appropriations that funded the 94 US attorney's offices and the main litigating divisions of the DOJ in that same period. However, the vast majority of this recovery came from corporate coffers. For instance, nearly half of that recovered in 2014 can be attributed to just two corporate settlements: JP Morgan and Citigroup Inc. However, despite its recent success in obtaining large corporate settlements, the DOJ operates on a limited budget and consists of attorneys who can only do so much. The man hours and financial resources it takes to pursue individual prosecutions may come at the cost of corporate investigations and enforcement that could otherwise have been pursued. This may affect the DOJ's budget in ways it had not anticipated.


Companies should be interested in tracking the effect of the policies reflected in the Yates Memorandum, in terms of both the impact on the amount of money that is recovered through settlements and judgments and the number of corporate investigations that are conducted. These trends will affect the extent to which the guidelines articulated in the Yates Memorandum will succeed, in terms of both deterring corporate misconduct and producing "a change that will protect public resources over the long term", as intended.

For further information on this topic please contact Sara Hallmark at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email ( Hogan Lovells website can be accessed at

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.