In a new memorandum issued to all federal prosecutors and made available to all civil litigators Sept. 9, Deputy Attorney General Sally Quillian Yates outlined certain nonmandatory steps government attorneys should strongly consider in criminal and civil corporate investigations to ensure that the individuals who perpetrated the corporate wrongdoing are held accountable.

The idea of individual accountability for corporate misconduct is not new. In fact, the U.S. Department of Justice has long expected that corporations seeking to avoid charges voluntarily cooperate with government investigators, including by identifying culpable individuals.

Indeed, voluntary cooperation has been considered a mitigating factor for a corporation facing potential charges. As Yates acknowledged, in the past companies have been awarded partial cooperation credit even if they stopped short of identifying the individuals involved in the wrongdoing.

The Yates memorandum puts corporations and counsel on notice that half-hearted cooperation efforts will no longer be rewarded. Recognizing the challenges government attorneys face in holding culpable individuals accountable for corporate wrongdoing, Yates firmly stated, “No more partial credit for cooperation that doesn’t include information about individuals.”

While it remains to be seen what — if any — long-term effects this new all-or-nothing approach will have for pending and future investigations, the message is clear: Corporations seeking to avoid formal charges by cooperating with government attorneys will have an uphill battle absent clear evidence of complete cooperation.

Nuts and Bolts of the Yates Memo
The Yates memorandum sets forth six specific measures that federal prosecutors and civil attorneys are to consider in corporate investigations. The first point relates to the department’s expectations of corporations seeking cooperation credit, while the other five address how government attorneys are expected to conduct, develop and resolve corporate investigations.

As an initial requirement, to be eligible for any cooperation credit, corporations must conduct a thorough investigation of the wrongdoing, identify all culpable individuals, produce all non-privileged information to the department and agree to continued cooperation regarding the culpable individuals even after the corporation investigation ends. This threshold requirement of complete cooperation applies to criminal as well as civil investigations.

The remaining factors address what corporations should do from the inception of the investigation:

  • Criminal and civil corporate investigations should focus on individual accountability.
  • Criminal and civil attorneys handling corporate investigations should develop and coordinate civil and criminal proceedings and be in routine communication with each other.
  • Absent extraordinary circumstances, no corporate resolution should protect any individual from criminal or civil liability.
  • Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires, and any decision not to pursue an individual involved in the alleged misconduct must be memorialized and approved.
  • In considering whether to bring a civil action against the alleged culpable individuals, civil attorneys should evaluate each case based on considerations beyond the individual’s ability to pay.

Cooperation Credit Requirements Analyzed
Prior to the Yates memorandum, corporations could gain cooperation credit based on their “willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives,” according to the Principles of Federal Prosecution of Business Organizations as revised in 2008 by then-Deputy Attorney General Mark Filip.

In comparison, the Yates memorandum is drafted in a sharper tone in that the cooperation credit requirements are stated in absolute and categorical terms.  Paradoxically, however, these terms also happen to be vague and ambiguous.

The Yates memorandum sets forth four components to the cooperation credit requirements, and these components are expected to be incorporated into the U.S. Attorneys’ Manual. First, corporations seeking any cooperation credit must identify all culpable individuals, regardless of their position on the corporate ladder.

This is a tall order, as Yates herself recognized the complexity of corporate wrongdoing. Responsibility is often diffuse, and high-level executives are rarely involved in the day-today activity in which the misconduct occurs.

Nevertheless, as a second component of the required cooperation, corporations seeking credit cannot plead ignorance or fail to learn the identity of the culpable individuals. Instead, they must take necessary steps to identify those responsible for or directly involved in the wrongdoing.

In other words, corporations must conduct thorough internal investigations that are narrowly tailored to the specific corporate misconduct. Failure to do so will disqualify corporations from being considered for cooperation credit, even if they cooperate in other aspects of the investigation.

In a speech at the Second Annual Global Investigations Review Conference held in New York on Sept. 22, Assistant Attorney General Leslie R. Caldwell said the department does not intend to “outsource” its investigation of corporate wrongdoing to companies and their outside advisors.

Nevertheless, the implication of the new requirements appears to be that companies must build up the case for government attorneys in order to qualify for any cooperation credit. Thus, the Yates memorandum effectively deputizes corporations to help the department bring the culpable individuals to justice.

As Caldwell explained, “[C]ompanies seeking cooperation credit must affirmatively work to identify and discover relevant information about culpable individuals through independent, thorough investigations.”

Third, corporations seeking credit must produce the result of any internal investigation. They must provide government attorneys with “complete factual information about individual wrongdoers” as well as “all relevant facts about their misconduct.”

It is unclear what “complete” factual information about individual wrongdoers actually constitutes. With respect to “all” facts relating to misconduct, the question is how much detail is required in an era in which corporate servers contain terabytes of data.

Are corporations now required to become expert sleuths capable of tracking any and all clues to their full conclusion?

Both Yates and Caldwell recommend that defense counsel call the responsible government attorney to clarify the scope of investigation if necessary. The question, however, is whether the government attorneys have any incentive to provide any substantive advice.

The Yates memorandum calls on government investigators to compare any information received from the corporation against information gathered from their own investigation. These results are then used to determine whether the corporation is fully forthcoming or whether it seeks to minimize the role of any one person or group of individuals.

Caldwell also attempted to assure the corporate world that the department is not asking the impossible.

“[The department] recognize[s], however, that a company cannot provide what it does not have. And [the department] understand[s] that some investigations — despite their thoroughness — will not bear fruit,” she said. “Where a company truly is unable to identify the culpable individuals following an appropriately tailored and through investigation, but provides the government with the relevant facts and otherwise assists [it] in obtaining evidence, the company will be eligible for cooperation credit.”

When analyzed more closely, however, this statement is as elusive as the Yates memorandum’s guidance. Whether an internal investigation is “appropriately tailored and thorough” is subject to the discretion of the government’s attorneys.

Another issue raised by the disclosure requirement is the dilemma of privileged information. Generally, when internal investigations are conducted by counsel or at the direction of attorneys — and for the purpose of providing legal advice to the corporation — the information obtained is privileged.

While the Yates memorandum says corporations are expected to provide non-privileged evidence implicating the responsible parties, the department’s approach to evaluating cooperation may give government attorneys a way to do indirectly what they cannot do directly: to require that corporations produce privileged information.

In fact, the Yates memorandum instructs government attorneys to “strive to obtain from the company as much information as possible about responsible individuals before resolving the corporate case.”

Caldwell attempted to clarify the issue of privilege waivers, stating that the new guidance does not change existing department policy regarding the attorney-client privilege or work product protection. Government attorneys, she said, will not request a corporate waiver of these privileges in connection with corporation cooperation.

However, she did not address the department’s general expectation of disclosure of underlying facts contained within privileged materials or situations where individual culpability cannot be established even after a good-faith investigation. Therefore, the corporation may have no choice but to waive privilege to demonstrate the basis for its conclusion if it wants to be considered for cooperation credit.

Finally, the Yates memorandum says the requirement that corporations fully cooperate will continue even after the corporate investigation resolves, either by way of corporate plea agreement or settlement agreement.

Corporations should expect any plea or settlement agreement to include this requirement of continued cooperation, including the requirement to provide any additionally acquired information about the individuals implicated in or responsible for the wrongdoing. Failure to do so will be considered a material breach of the agreement and grounds for revocation or stipulated penalties.

To be clear, the cooperation credit is not guaranteed even when a corporation meets the threshold requirement of producing the results of its (thorough) internal investigation, including facts about the responsible parties. Rather, by meeting this requirement the corporation merely becomes eligible for consideration for cooperation credit.

The Yates memorandum enumerates some eligibility factors. When determining the extent of the cooperation credit, government attorneys will consider factors including “the timeliness of the cooperation, the diligence, thoroughness, and speed of the internal investigation [and] the proactive nature of the cooperation.”

While these factors are not new, their application in the context of the department’s all-or -nothing approach remains unclear.

Steps to Consider in Response to the New Guidance
Corporations that take affirmative steps to ensure that their response to any corporate wrongdoing is appropriate under the circumstances will probably be in a better position to secure cooperation credit. As part of best practices, therefore, companies may want to take some general preventive steps, including to:

  • Implement and review existing internal investigation policies, including ethics and compliance programs, to ensure for a thorough program designed to deter, identify and remediate violations of laws and regulations, and provide relevant training and effective reporting mechanisms.
  • Document management’s response to issues brought to its attention, and adopt appropriate measures to demonstrate good faith on the part of the company’s executives in the operation of the company.
  • Review bylaws to determine whether the company is obligated to indemnify and advance legal expenses and costs to employees and senior executives.
  • Review employment contracts to ensure individuals are required to cooperate in internal investigations.
  • Review corporate insurance to ensure it is mandatory, automatically triggered and provides sufficient protection.
  • Become familiar with data privacy laws of any foreign country in which the corporation is present.
  • Adopt legal strategies to minimize the risk of losing applicable legal privileges.

Source: White-Collar Crime (Westlaw Journal, December 2015)