The Yates Memorandum on Prosecuting Individuals

In September 2015, the US Deputy Attorney General, Sally Yates published what is now known as the “Yates Memorandum”, in the form of instructions to US District Attorneys on focusing on holding individuals accountable for various crimes, including foreign bribery.

The key steps set out in that Memorandum, which need to be appreciated by all corporations, directors and officers, are the following:

  • corporations must disclose the conduct of all relevant employees and officers to qualify for credit in cooperating with the US authorities;
  • individuals should be the focus in all criminal and civil corporate investigations;
  • criminal and civil investigators must routinely work closely together;
  • absent exceptional circumstances, culpable individuals must not be released from any liability when resolving claims against the corporation;
  • any resolution with a corporation must include a clear plan to resolve or deal with individuals and any declined prosecutions must be set out in writing; and
  • civil investigators must focus on claims against individuals beyond merely considering an individual’s ability to pay (a fine or costs).

This Memorandum may be nothing more than a restatement of the practices of the DOJ and the SEC. However, it is refreshingly stark in its message to directors and executives – be warned as all senior individuals involved in corporate crime will have their conduct closely examined.

Judicial Review of Corporate and Individual Deferred Prosecution Agreements

In a recent ruling in United States v Saena Tech Corporation and United States v Intelligent Decisions Inc, Case 1:14-cr-00066-EGS dated 21 October 2015, the US District Court published a comprehensive judgment on the powers of the US Federal Courts to review Deferred Prosecution Agreements (DPAs) and their extension to cover individuals.

Key features to emerge from the lengthy ruling include the following:

  • the Court has jurisdiction (under the US Speedy Trial Act in truncating criminal and civil process to ensure a quick resolution of proceedings) to review the reasonableness of a DPA and decline approval if the agreement is not genuinely designed to reform a defendant’s conduct;
  • the Court is not an administrative “stamp” merely to approve DPAs without question, as the US DOJ argued;
  • a DPA can in principle, be granted to an individual subject to each individual case; and
  • the Court said Congress did not limit DPAs to individuals or corporations and the US authorities should consider using DPAs to encourage individuals to demonstrate their rehabilitation (in light of the focus noted in the Yates Memorandum to target culpable individuals).

This judgment is an interesting call to the US authorities to show more flexibility in dealing with individuals who have traditionally been excluded from DPAs and who have no choice but to plead guilty or to fight lengthy, expensive criminal prosecutions. Whether the US authorities take up this call remains to be seen.

SEC Whistleblower Reward

On 4 November 2015, the SEC announced a whistleblower award totaling more than US$325,000 for a former investment firm employee who tipped the agency with specific information that enabled enforcement staff to open an investigation and uncover the extent of the fraudulent activity. The whistleblower provided a detailed description of the misconduct and specifically identified individuals behind the wrongdoing to help the SEC bring a successful enforcement action. The whistleblower waited until after leaving the firm to come forward to the SEC. Agency officials say the award could have been higher had this whistleblower not hesitated.

“Corporate insiders who become aware of securities law violations are encouraged to come forward without delay in order to prevent misconduct from continuing unabated while investors suffer more harm,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. “Whistleblowers are afforded significant incentives and protections under the Dodd-Frank Act and the SEC’s whistleblower program so they can feel secure about doing the right thing and immediately reporting an ongoing fraud rather than letting time pass.”

Sean McKessy, Chief of the SEC’s Office of the Whistleblower, added, “This award recognizes the value of the information and assistance provided by the whistleblower while underscoring the need for whistleblowers to report information to the agency expeditiously.”