A company’s willingness to cooperate in the investigation of its agents has long been one of several factors that federal prosecutors openly consider under guidelines issued by the United States Department of Justice (“DOJ”) when determining whether (and how much) to award a company cooperation credit during a government investigation.1 Until recently, however, corporate cooperation analysis appeared to focus more on a company’s voluntary disclosure of corporate malfeasance and less on the assistance it proffered against individual employees who were potentially responsible for the misconduct. Now, amid increasing public criticism regarding the perceived dearth of individual prosecutions following the 2008 financial crisis, government officials are putting new emphasis on a company’s efforts to cooperate in the investigation and prosecution of culpable individuals.
As we discuss below, this new focus could have a number of important implications for companies and individuals involved in internal investigations. A more adversarial and mistrustful relationship between companies and their employees may slow the pace of internal inquiries, increase their corresponding cost and complexity, even in cases in which no wrongdoing is found, and potentially reduce the quality of investigative findings. On the other hand, a focus on individual prosecutions – particularly in the FCPA context, in which the government is required to prove willfulness for criminal violations – may restore a useful check on the government’s authority, in contrast to the distorted results sometimes reflected in compromises with organizational defendants that cannot sensibly risk the collateral consequences of litigation on a criminal matter.
Remarks by Principal Deputy Assistant Attorney General Marshall L. Miller
Marshall L. Miller, Principal Deputy Assistant Attorney General for the Criminal Division of the DOJ, addressed the attendees of a Global Investigations Review conference held on September 17, 2014. The primary focus of Miller’s remarks was to stress the importance of companies obtaining and providing evidence against culpable individuals in order to secure credit for cooperation under the DOJ’s Principles of Federal Prosecution of Business Organizations, also known as the “Filip memorandum.”2 To illustrate his points, Miller highlighted a number of recent FCPA investigations, including the BizJet, Maurubeni, and PetroTiger cases, though his remarks were not limited to the FCPA context.
As Miller explained, the Filip memorandum lists nine considerations, often referred to as “Filip factors,” that prosecutors should assess in determining whether to bring criminal charges against a company. The fourth Filip factor instructs prosecutors to consider both “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.”3 Miller noted that, too often, companies focus on the first prong of this factor and give “short shrift” to the second, which he described as “the heart of effective corporate cooperation.” Miller underscored that the DOJ’s existing internal guidance on applying the fourth Filip factor instructs prosecutors to consider a company’s “willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives.”4 The eighth Filip factor “reinforce[s]” this point, directing prosecutors to assess cooperation credit in light of “the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.”5
In no uncertain terms, Miller warned his audience to “expect that a primary focus [of the DOJ’s evaluation of any Filip factor presentation] will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, how tireless your efforts were to find the people responsible.” As Miller “blunt[ly]” explained:
If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.
Make those efforts the last thing you talk about before you walk out.
And most importantly, make securing evidence of individual culpability the focus of your investigative efforts so that you have a strong record on which to rely.
Miller went so far as to compare organizations conducting an internal investigation to cooperators in an organized crime case, noting that mob cooperators do not receive credit for disclosing merely their own criminal conduct. Rather, they must offer testimony or other evidence against their co-conspirators to be eligible for sentencing reductions.
Miller also noted that prosecutors intend to “pressure test” internal investigations by conducting their own parallel investigations. In doing so, Miller said, the DOJ will coordinate closely with foreign law enforcement and will not hesitate to employ aggressive investigative techniques “that may not have been used frequently enough in white collar cases in past years,” such as “wiretaps, body wires, physical surveillance, and border searches.”
Notably, Miller singled out one common issue for multinational companies in conducting an internal investigation – navigating foreign data security laws – as a source of frustration for prosecutors. Miller said that the DOJ would view with particular skepticism a company’s claimed inability to gather foreign documents due to foreign data protection laws, citing the DOJ’s “deepening relationships with foreign governments and growing sophistication and experience in analyzing foreign laws.” Miller warned that companies place their cooperation credit at risk if they use “inaccurately expansive interpretations of foreign data protection laws” to shield potentially culpable individuals or other evidence of misconduct.
Contextualizing the importance of cooperation efforts against individuals, Miller stated that DOJ’s publicly-announced declination of charges against Morgan Stanley in 2012 was in part motivated by the firm’s identification of, and efforts to secure evidence against, the individual executive responsible for the misconduct, Garth Peterson, who ultimately pleaded guilty to FCPA-related conspiracy violation for knowingly violating Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official. By contrast, Miller cited the charges brought against BNP Paribas and Credit Suisse earlier this year as examples of how “the lack of timely and complete cooperation,” which “frustrated the pursuit of individual prosecutions,” can be “one of the tipping points” leading to charges against an organization.
A Shift in Emphasis
Miller’s address appears to reflect a larger, DOJ-wide shift in emphasis on the importance of individual prosecutions in the corporate criminal context, particularly in response to public criticism of prosecutors’ failure to hold corporate executives responsible for perceived corporate malfeasance in the aftermath of the financial crisis. Miller’s remarks were reinforced by other government officials in recent speeches, including United States Attorney General Eric Holder, and Leslie Caldwell, Assistant Attorney General of the DOJ’s Criminal Division.
In an address given on the same day as Miller’s, Holder spoke about the importance of individual prosecutions in the financial fraud context. Acknowledging that the dearth of such prosecutions “has been a source of frustration for the public for a long time,” Holder assured his audience that “[d]espite the growing jurisprudence that seeks to equate corporations with people, corporate misconduct must necessarily be committed by flesh-and-blood human beings.”6 Holder emphasized that “wherever misconduct occurs within a company, it is essential that we seek to identify the decision- makers at the company who ought to be held responsible.”7
Similarly, in an early September interview in which she discussed the guilty plea by BNP Paribas to criminal sanctions violations, Caldwell emphasized that cooperation credit required full disclosure of evidence implicating individuals responsible for corporate misconduct: “Just as we would not allow an individual cooperator, who’s a member of a conspiracy, to get credit at sentencing if he didn’t implicate other conspirators, we want companies to know they will not get credit for cooperation when they fail to provide full, factual information that’s at their disposal about culpable individuals.”8
Possible Implications for Internal Investigations
Requiring a company to focus its investigative efforts on securing evidence of individual culpability in order to share such evidence with the DOJ could have significant effects on the tenor, pace and reliability of internal investigations. Most immediately, the DOJ’s emphasis on corporate assistance in individual prosecutions may have a chilling effect on communication between employees and investigators during the course of an internal inquiry. Although the potential for a conflict of interest between a company investigating potential misconduct and the employees who may be responsible for that conduct is often present, employees who view the company as starting with a strong incentive to identify potential individual culprits may be reticent to be fully forthcoming during interviews by counsel.
Relatedly, the perception of an adverse relationship between a company and its employees may lead employees to request separate counsel more often and at earlier stages of the investigation, irrespective of whether a conflict truly exists. The precautionary addition of separate counsel for more witnesses will necessarily slow the pace and increase the cost of internal inquiries, even for those in which no wrongdoing is found. For those witnesses who do not seek separate representation, investigating attorneys will be well advised to be vigilant in providing Upjohn warnings to make clear that the interests of the company and the employee may diverge.
An atmosphere of mistrust can also have a detrimental effect on the quality of the information gathered in the investigation. Indeed, full and voluntary cooperation by employee witnesses is essential for a company to conduct successfully an internal investigation and respond effectively to any subsequent government inquiries, as well as to develop and implement a viable set of remedial measures. One way to encourage otherwise reluctant employees to cooperate is through the use of corporate cooperation agreements that, among other things, release employees from corporate liability in exchange for their cooperation.9 Although such agreements cannot (and should not) provide assurances that a company will not bring an employee’s conduct to the attention of the government, they nevertheless can provide incentives and protections that may be sufficiently encouraging in some cases. The use of such agreements may be all the more necessary in light of the DOJ’s recent statements.
The Benefits of More Individual Prosecutions
Putting aside the potential negative corporate cultural consequences and the additional hurdles that may be imposed in the context of corporate investigations, the government’s focus on individual prosecutions could yield some welcome change. Charges against individuals are more likely to result in adversarial proceedings, judicial review, and trials before a jury, all of which may have a beneficial effect on the development of the law. Recent experience shows that companies are often willing to admit wrongdoing as a compromise with the government even when there are no individual employees against whom the government could prove a criminal violation.10 As our colleague Matthew E. Fishbein has written elsewhere, “[b]y using their considerable leverage to induce companies to enter into settlements in increasingly marginal cases and forcing them to admit to egregious conduct to settle charges that likely would not survive a legal challenge or be proved to a jury, prosecutors have created a situation in which the public is deceived into thinking that the individuals involved in corporate criminal conduct are receiving a free pass.”11 Although the Attorney General has recently suggested lowering (or eliminating) the standard of criminal intent required in certain financial services contexts,12 the FCPA expressly falls at the other end of the spectrum, requiring that the government prove a willful violation in any individual prosecution.13
In light of that higher standard, we do not expect to see a flood of individual FCPA prosecutions. Nor do recent charging statistics suggest that a marked shift toward the prosecution of individuals is underway.14 Moreover, Miller did not point to specific shortcomings in the ways that well-represented companies commonly conduct internal FCPA inquiries (other than his reference to overbroad interpretations of foreign data privacy laws). Whether the recent statements by DOJ officials are primarily a response to public criticism or represent a true shift in prosecutorial priorities remains to be seen. This will be an issue to watch in the coming months.