U.S. DOJ Clarifies Policies for Holding Individuals Accountable for Corporate Wrongdoing: Reflects DOJ Practice in Criminal Cases; Grants More Discretion in Civil Cases

U.S. DOJ Clarifies Policies for Holding Individuals Accountable for Corporate Wrongdoing: Reflects DOJ Practice in Criminal Cases; Grants More Discretion in Civil Cases 1 December 2018 U.S. DOJ Clarifies Policies for Holding Individuals Accountable for Corporate Wrongdoing: Reflects DOJ Practice in Criminal Cases; Grants More Discretion in Civil Cases. On November 29, 2018, U.S. Deputy Attorney General Rod Rosenstein announced changes to the U.S. Department of Justice’s (“DOJ”) policies concerning individual accountability in corporate enforcement cases.1 These changes reflect the culmination of a review process initiated last year to consider input from DOJ attorneys, law enforcement agents, and the private sector to improve the DOJ’s policies. With respect to criminal cases, companies now only need to provide the DOJ with information about individuals who were “substantially” involved in the alleged misconduct to be eligible for cooperation credit, rather than all such employees, regardless of their level of involvement. With respect to civil cases, Rosenstein announced a number of policy changes that give enforcement attorneys more discretion. Civil enforcement attorneys may now: (1) grant companies partial cooperation credit if they provide “meaningful assistance” to the DOJ, even if they do not provide information related to lower-level employees; (2) release individuals from civil liability when resolving civil corporate cases, if warranted; and (3) consider an individual’s ability to pay as a determinative factor in evaluating whether to bring civil claims against him or her. Background In September 2015, then-Deputy Attorney General Sally Yates issued new guidance (subsequently known as the “Yates Memo”) that made holding individuals accountable for corporate wrongdoing a top enforcement priority at the DOJ. The Yates Memo outlined steps for DOJ prosecutors and civil enforcement attorneys to follow in investigating corporate misconduct in both criminal and civil cases. Most importantly, the Yates Memo provided that: (1) corporations must provide to the DOJ all relevant facts relating to the individuals responsible for misconduct in order to qualify for any cooperation credit; (2) investigations should focus on individuals from their inception; 1 A copy of Rosenstein’s speech is available at the link here. Contents Background....................... 1 The DOJ’s “Revised” Policies ............................. 2 Criminal Cases.............. 2 Civil Cases .................... 3 Conclusion ........................ 4 U.S. DOJ Clarifies Policies for Holding Individuals Accountable for Corporate Wrongdoing: Reflects DOJ Practice in Criminal Cases; Grants More Discretion in Civil Cases 2 (3) absent extraordinary circumstances, the DOJ will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; and (4) civil attorneys should evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay. In October 2017, Rosenstein announced that the DOJ was undertaking a comprehensive review of many of its corporate enforcement policies, including, among others, the Yates Memo.2 In doing so, he promised that any changes would make the DOJ’s policies “more clear and more concise,” and would reflect input from stakeholders both inside and outside the DOJ. Shortly thereafter, Rosenstein announced the DOJ’s new FCPA Corporate Enforcement Policy (“FCPA Policy”) that institutionalized the DOJ’s prior FCPA Pilot Program after making certain changes, including adding the presumption of a declination of prosecution for companies that voluntarily self-disclose misconduct, fully cooperate, and timely and appropriately remediate.3 Since then, the DOJ has incrementally announced the results of its ongoing policy review process.4 The changes enumerated in Rosenstein’s November 29 speech specifically relate to the DOJ’s review of the Yates Memo. The DOJ’s “Revised” Policies Criminal Cases Echoing the Yates Memo, Rosenstein observed that corporate cases often fail to “effectively punish[] the human beings responsible for making corrupt decisions,” and highlighted that the DOJ’s revised policy will continue to make pursuing individuals responsible for wrongdoing “a top priority in every corporate investigation.” He underscored two aspects of the policy. First, “absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability.”5 As indicated above, this principle was reflected in the Yates Memo and previously incorporated in the DOJ’s Justice Manual in the section addressing corporate plea agreements. The revision noted by Rosenstein refers to the addition of this same principle to the section of the Justice Manual dealing with “individual wrongdoers” in criminal corporate cases, and, thus, does not represent any shift in policy. Second, Rosenstein announced a change regarding the amount of information that companies looking to receive cooperation credit must provide to the government. The Yates Memo required corporations to provide the DOJ with all relevant facts relating to all individuals responsible for misconduct to qualify for any cooperation credit. The revised policy now states that “the company must identify all individuals substantially involved in or responsible for the misconduct at issue,” regardless of their position, status, or seniority, and provide all relevant facts relating to that misconduct in order to receive any 2 A copy of Rosenstein’s October 2017 speech is available at the link here. 3 You can read more about the new FCPA Policy at the link here. 4 In July 2018, the DOJ announced the application of the FCPA Policy to post-merger successor entities (linked), and in October 2018, the DOJ announced new guidance on imposing corporate compliance monitors (linked). 5 See Justice Manual § 9-28.210 (linked). U.S. DOJ Clarifies Policies for Holding Individuals Accountable for Corporate Wrongdoing: Reflects DOJ Practice in Criminal Cases; Grants More Discretion in Civil Cases 3 cooperation credit.6 In explaining this change, Rosenstein stated that “investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted,” and that “it is not practical to require the company to identify every employee who played any role in the conduct.”7 While this represents a shift in the DOJ’s written policy, it is not markedly different from DOJ past practice; rather, it reflects the reasonable discretion that DOJ prosecutors have exercised and will continue to exercise. The key consideration will be how the DOJ interprets “substantial,” particularly in relation to the FCPA Policy, which currently has language seemingly inconsistent with this latest revision announced by Rosenstein. The FCPA Policy requires companies to disclose “all relevant facts about all individuals involved in the violation of the law.”8 The Acting Chief of DOJ’s Fraud Section, Sandra Moser, likewise acknowledged that “there will be questions about the interplay” between the DOJ’s revised policy on individual accountability and the FCPA Policy “because not all the same language is used.”9 It remains to be seen what practical impact the policy modifications announced by Rosenstein will have. Companies will no longer be required by policy to identify every employee who might have played some role in the alleged wrongdoing – but, in practice, most prosecutors were already reading that requirement to include an implicit reasonableness requirement. Now, determining who was “substantially” involved will be an issue that clients may want to negotiate with the DOJ, for example, in setting the parameters of document reviews or interviews. Because companies subject to potential criminal prosecution by the DOJ will want to fully understand the scope of any potential wrongdoing, internal investigations are not likely to change significantly; any change is more likely to occur regarding how much information the government later expects to be shared. Civil Cases Rosenstein explained his view that the “all or nothing” approach of the Yates Memo was “inefficient” in the civil context; because “[c]ivil cases are different,” DOJ civil enforcement attorneys were not always strictly enforcing many of the previous “all or nothing” policies. Accordingly, Rosenstein announced that the DOJ was revising its policies in three principal ways to return more discretion to civil enforcement attorneys. Rosenstein explained that these three revisions are “consistent with [the DOJ’s] commitment to hold individuals accountable in every appropriate case,” but that “[i]f it is not justified, we will move on.” 6 See Justice Manual § 9-28.700 (linked) (emphasis added). 7 The Justice Manual was also revised to state that “[i]f the company is unable to identify all relevant individuals or provide complete factual information despite its good faith efforts to cooperate fully, the organization may still be eligible for cooperation credit.... For example, there may be circumstances where, despite its best efforts to conduct a thorough investigation, a company genuinely cannot get access to certain evidence or is legally prohibited from disclosing it to the government. Under such circumstances, the company seeking cooperation will bear the burden of explaining the restrictions it is facing to the prosecutor.” Id. 8 See Justice Manual § 9-47.120 (linked). 9 See Adam Dobrik, Yates Memo Change Turns Attention to Meaning of Substantial Involvement, Global Investigations Review (Nov. 30, 2018), available at the link here. U.S. DOJ Clarifies Policies for Holding Individuals Accountable for Corporate Wrongdoing: Reflects DOJ Practice in Criminal Cases; Grants More Discretion in Civil Cases 4 First, civil attorneys may once again award corporations some cooperation credit where they have provided “meaningful assistance”10 to the government’s investigation, even if they have not identified every non-managerial individual “who might face civil liability in theory, but in reality would not be sued personally.” Under the Yates Memo, cooperation credit was all-or-nothing and depended on companies providing information about all individuals involved in the misconduct. Rosenstein underscored, however, that this new policy does not permit “corporations to conceal wrongdoing by senior officials,” including members of senior management or the board of directors. Companies that conceal misconduct by senior officials, or otherwise demonstrate a lack of good faith in their representations regarding the nature or scope of the misconduct, are not eligible for any cooperation credit at all. Second, civil attorneys are now permitted to negotiate civil releases for individuals who do not warrant additional investigation in corporate civil settlement agreements. Under the Yates Memo, civil attorneys were not allowed to release culpable individuals from civil liability when resolving a corporate matter unless “extraordinary circumstances” were present. Third, and again in a reversal of the Yates Memo, civil enforcement attorneys are permitted to use an individual’s ability to pay as a determinative factor in deciding whether to bring a civil claim. “We generally do not want attorneys to spend time pursuing civil litigation that is unlikely to yield any benefit; not while other worthy cases are competing for our attention,” Rosenstein explained. Conclusion Overall, the DOJ’s new policies do not represent a significant shift from DOJ’s articulated commitment to holding individuals accountable in corporate cases, but they do serve both to clarify DOJ’s focus on individuals who were substantially involved in criminal misconduct and to increase the amount of discretion afforded to civil enforcement attorneys pursuing corporate cases. The new policies also give companies under investigation a basis to push back on requests from prosecutors or civil enforcement attorneys who may have been using the prior policies to push for more information than was warranted. 10 The Justice Manual provides that “[m]eaningful assistance may include, for example, a corporation’s voluntary disclosure of misconduct, cooperation that allows the [DOJ] to identify a problem and secure a resolution without expending investigative resources that otherwise would be required, or assistance that enables the [DOJ] to pursue misconduct that otherwise would not be redressed.” See Justice Manual § 4-3.100(3) (linked). Contacts For further information please contact: Matthew Axelrod Partner +1 202 654 9264 [email protected] Doug Davison Partner +1 202 654 9244 [email protected] Adam Lurie Partner +1 202 654 9227 [email protected] Douglas Tween Partner +1 212 903 9072 [email protected] Caitlin Potratz Metcalf Senior U.S. Associate +1 202 654 9240 [email protected] Sean Mooney U.S. Associate +1 212 903 9209 [email protected] Linklaters LLP 1345 Avenue of the Americas New York, NY 10105 Telephone (+1) 212 903 9000 Facsimile (+1) 212 903 9100 Linklaters.com Authors: Matthew Axelrod, Doug Davison, Adam Lurie, Doug Tween, Caitlin Potratz Metcalf, Sean Mooney This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. © Linklaters LLP. All Rights reserved 2018 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC326345. It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the nonmembers who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on www.linklaters.com. Please refer to www.linklaters.com/regulation for important information on Linklaters LLP’s regulatory position. We process your data in line with our Global Privacy Notice. You can view this at www.linklaters.com/en/legalnotices/privacy-notice. To opt-out of receiving any marketing emails from us, or to manage your email preferences and the personal details we hold for you, please contact: [email protected].