Last week, the DOJ issued new internal guidance for its prosecutors entitled “Individual Accountability for Wrongdoing” issued by Deputy Attorney General Sally Quillian Yates (the “Yates Memo”). The Yates Memo outlines the Department’s revised approach to the prosecution of individuals in the context of corporate investigations. For government contractors conducting internal investigations and considering voluntary disclosures, the Yates Memo means it’s not enough to uncover and disclose potential wrongdoing that led to waste, fraud and abuse. Now, it’s time to point fingers and name names.
The Yates Memo contains six “key steps to strengthen [the DOJ’s] pursuit of individual corporate wrongdoing”:
- The DOJ will not award a corporation or financial institution “any consideration for cooperation” credit unless it fully discloses the misconduct of its employees and provides the Department with all inculpatory evidence in its possession regarding those employees.
In the past, the DOJ has frequently cited the importance of providing evidence of individual misconduct. Nevertheless, the lack of individual prosecutions in connection with some recent high-profile cases has called that commitment into question. In part, the new policy appears to be a response to that criticism.
- The DOJ will focus on culpable individuals from the inception of an investigation.
The import of this guidance is that from the outset, the DOJ will be focused not just on the how and why relating to the misconduct but also the who. Accordingly, government contractors should structure their own investigations in a similar manner.
- The DOJ is implementing stronger coordination amongst its prosecutors and civil attorneys (and other agency counterpart) to pursue individual defendants.
The Department has long stressed the importance of coordination in parallel proceedings. The Yates Memo seems intended to stress that this coordination is equally vital with respect to pursuing individuals—particularly since in many cases criminal prosecutors may not be able to meet their burden of proof for a criminal prosecution yet there may be sufficient evidence to warrant a civil or regulatory enforcement action.
- Absent extraordinary circumstances, no corporate resolution will provide protection to individual executives or employees.
Notably, this guidance focuses on corporate “resolutions,” not just corporate criminal prosecutions, suggesting the focus on individuals will be equally strong where a corporation is able to successfully enter into a Deferred Prosecution Agreement or Non-Prosecution Agreement.
- DOJ attorneys cannot resolve corporate prosecutions “without a clear plan to resolved related individual cases before the statute of limitations expires.” Moreover, in instances where the DOJ decides to pursue a corporate resolution but declines to charge any individuals, the prosecution team must memorialize the justification for the declination(s) internally and obtain approvals from senior DOJ officials.
Although it has always been uncommon for DOJ corporate resolutions to explicitly resolve the criminal liability of individual employees or executives, there have been a disproportionate number of corporate resolutions where no individuals were ever prosecuted. This has fostered criticism both that: (1) the Department was more serious about collecting criminal fines and forfeitures than pursuing criminal activity; and (2) the Department has coerced corporations into resolving relatively weak cases using the threat of a criminal indictment
The Yates Memo seems designed to address both these concerns by requiring DOJ Trial Attorneys and AUSAs to justify their decision not to pursue individual prosecutions internally and obtain approval from senior Department officials.
- The DOJ will not forego civil enforcement efforts because of a defendant’s inability to pay.
There has been speculation in the past that the DOJ will not expend resources to pursue civil enforcement actions against defendants with a limited ability to pay. The Yates Memo specifically prohibits DOJ attorneys from premising their decision not to initiate an action on that basis. They are now directed to look to the merits of the action and its potential deterrent effect regardless of whether the Government will be able to collect substantial fines.
In many respects, the Yates Memo simply memorializes the recent shift by the DOJ toward a greater focus on individual culpability and is intended to rebut recent criticism that the DOJ has not been aggressive enough in pursuing individuals. Nevertheless, the new policy will likely lead to a greater number of individual prosecutions based on: (1) the requirement that cooperating government contractors/corporations provide inculpatory evidence on their own employees as a precondition of receiving any cooperation credit; and (2) the implementation of an internal approval process before prosecutors can decline to prosecute individuals in connection with a corporate resolution. In comments last week at New York University Law School, Deputy Attorney General Yates described the motivation for the revised policy as follows: “We have revised our policy guidance to require that if a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company, and provide all relevant facts about their misconduct.” Notably, “to the extent it is practicable” the guidance in the Yates Memo is intended to apply to all pending investigations as well as future investigations.
The impact of these changes on government contractors is clear. The Yates Memo applies exclusively to DOJ attorneys. Accordingly, it has no direct impact on agencies’ enforcement efforts from the Inspector Generals’ offices. Nevertheless, parallel investigations by IGs and the DOJ are not uncommon, and the government contracting world can be a minefield. Last week, the DOJ announced plea deals in a bid rigging case that came on the heels of a criminal investigation and guilty pleas obtained from the contractor’s program manager and his wife. Those investigations stemmed from a whistleblower’s qui tam action. But the resolution is instructive.
Going forward, government contractors should expect to see more criminal enforcement actions aimed at their employees. That means early in the process of an internal investigation the focus must be on individual accountability and, ultimately, culpability. Going forward, government contractors must be prepared to name names and turn over all the facts. That means that the interests of government contractors and their employees are no longer aligned as they perhaps once were. The best protection for government contractors and their employees in that changed landscape is separate legal representation for both. From the company perspective, that is the only way to avoid any perception that it has divided loyalties and to ensure the company gets the full “cooperation credit” benefit.