Yesterday (September 9), the Department of Justice issued a memorandum to all federal prosecutors describing a new initiative designed to hold individuals responsible for corporate wrongdoing, which received front page coverage in today’s New York Times and Wall Street Journal. This afternoon (September 10), Deputy Attorney General Sally Yates – the second highest ranking official in the DOJ – delivered a speech at New York University School of Law further explaining this new initiative.

The memorandum was the product of a senior – level working group at the DOJ and was plainly meant, at least in part, to respond to loud and growing criticism – from politicians, the judiciary, and the public – that the DOJ has failed to hold individuals responsible for corporate crimes in connection with the financial meltdown and other more recent misconduct.

The DOJ, along with civil regulatory authorities such as the Securities and Exchange Commission and the Commodity Futures Trading Commission, have obtained a large number of record – setting settlements in recent years. In very few cases, however, have individuals been held accountable for the underlying conduct. The DOJ is actively trying to reverse that trend. Ms. Yates emphasized that the DOJ’s mission is “not to recover the largest amount of money from the greatest number of corporations” but rather is “to seek accountability from those who break our laws and victimize our citizens.” By holding individuals responsible for corporate misconduct, the DOJ hopes to deter illegal activity, incentivize changes in corporate behavior, ensure that the proper individuals are held responsible for their actions, and “promote the public’s confidence in our justice system.”

Ms. Yates stated that DOJ leadership “thought carefully about what we should do within the Justice Department to ensure that individual accountability lies at the heart of our corporate enforcement strategy.” To that end, the DOJ memorandum identifies six specific “key steps” that are intended to strengthen the DOJ’s pursuit of individuals responsible for corporate wrongdoing. While some of those “key steps” appear to largely rework existing policy or set out best practices, others represent potentially significant departures from current policy. Ms. Yates discussed each of those “key steps” during her speech.

Obligation of Six "Key Steps"

1. To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about the individuals in corporate misconduct.

The DOJ has struggled to define the requirements for receiving cooperation credit at sentencing, and in some cases the DOJ went so far as to require corporations to waive the attorney-client privilege and/or refuse to advance legal fees to indemnified employees in certain cases before reversing course in response to widespread criticism and judicial disapproval.

Under existing policy, the DOJ requires corporations to disclose all relevant facts and documents about the misconduct, including facts relating to misconduct by individuals, in order to receive credit for cooperating with the authorities. The memorandum affirms that policy, but appears to expand upon it by requiring that corporations “identify all individuals involved in or responsible for the misconduct, regardless of their position, status, or seniority, and provide to the [DOJ] all facts relating to that misconduct.” Ms. Yates added in her remarks that,

If a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing . . . . It’s all or nothing. No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn’t include information about individuals.

Although some U.S. Attorneys Offices have insisted on corporate cooperation that includes identifying individual misconduct, this new policy explicitly requires corporations to specifically identify relevant individuals and the nature of their respective involvement in order to receive any cooperation credit at sentencing.

2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.

Notwithstanding this requirement, federal prosecutors typically focus on individual wrongdoing from the outset when investigating corporate misconduct because corporations necessarily act through their agents. As a result, this requirement should not significantly affect how federal prosecutors go about investigating corporate and individual misconduct.

3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.

Federal prosecutors have increasingly relied on parallel criminal and civil proceedings in recent years. Because defendants in civil cases are entitled to more limited procedural protections than defendants in criminal cases, the DOJ has implemented various rules to govern information sharing and coordination among the DOJ’s criminal and civil attorneys. Those rules will become even more important as the DOJ seeks to further increase coordination across the criminal and civil divisions, and potential transgressions of those rules may become fertile ground for defense attorneys.

4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.

While the new rules specifically exclude “approved departmental policy such as the Antitrust Division’s Corporate Leniency Policy” and provide a safety valve for “extraordinary circumstances,” this guidance could result in a change at the negotiation table. Global resolutions that protect employees, even with high financial penalties, are an attractive option for many corporations because they allow entities to resolve most legal exposure in one fell swoop. Corporations may be less inclined to resolve criminal or civil matters, even with lower penalties, knowing that the litigation against employees and related costs will continue regardless.

5. Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declination as to individuals in such cases must be memorialized and approved by the United States Attorney or Assistant Attorney General whose office handled the investigation, or their designees.

Under this requirement, federal prosecutors are now required to provide a detailed plan for concluding any ongoing investigations of individuals when seeking authorization to charge or resolve a case against a corporation. Moreover, in the event that a prosecutor determines that charges against an individual are not appropriate in a case in which resolution is reached with the corporate entity, that determination must be memorialized and approved by the responsible United States Attorney or Assistant Attorney eneral, or their designee. Those requirements further highlight the DOJ’s emphasis on charging individuals whenever possible. They also appear to create an impediment for line prosecutors to reach a corporate resolution without charging or being prepared to charge individuals. The potential impact of this new approval mechanism should not be underestimated.

6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay.

This requirement emphasizes the “twin aims” of civil enforcement actions – recovering money and deterring individual misconduct. Like their criminal counterparts, the memorandum directs DOJ civil attorneys to consider “factors such as whether the person’s misconduct was serious, whether it is actionable, whether the admissible evidence will probably be sufficient to obtain and sustain a judgment, and whether pursuing the action reflects an important federal interest.” Because of the lower burden of proof in civil cases, the DOJ may increasingly rely on civil enforcement actions to pursue individuals for corporate misconduct, especially where responsibility for a particular act (or omission) is diffuse and decisions are made at different levels within the organization.


The potential impact of the DOJ’s new directives will play out over the coming years. It is, however, beyond clear that the DOJ is committed to holding individuals accountable for corporate misconduct.  

Andrew B. Cashmore provided valuable assistance in the research and drafting of this client memorandum.