On September 9, 2015, U.S. Deputy Attorney General Sally Quillian Yates issued a memorandum to federal prosecutors nationwide outlining new policies designed “to strengthen [the Department of Justice’s] pursuit of individual corporate wrongdoing.”1 While the Department of Justice’s focus on the culpability of individuals is not news, the new guidelines make significant amendments to the Principles of Federal Prosecution of Business Organizations that provide prosecutors new leverage in their dealings with corporations. Under the new rules, companies must “disclose all relevant facts about the individuals involved in corporate misconduct” in order to receive cooperation credit, and they risk receiving zero credit if their disclosures about individual misconduct are viewed by prosecutors as incomplete.2 This new policy presents both opportunities and challenges for corporations and the lawyers and compliance professionals who advise them.
The new policy is notable for the leverage it vests in prosecutors. It directs that “[i]n order for a company to receive any consideration for cooperation,” a company must identify “all individuals” involved in corporate misconduct “regardless of their position, status or seniority.”3 Critically, prosecutors are empowered to deny cooperation credit to a company if they believe the company has either (i) “decline[d] to learn of  facts” concerning misconduct, or (ii) failed to provide “complete factual information” concerning such misconduct.4 We expect that prosecutors will explicitly or implicitly utilize the prospect of denying cooperation credit to pressure companies to look harder for, and disclose more about, misconduct, both actual and perceived.
Here’s the good news: The policy provides in-house lawyers and compliance professionals an opportunity to re-emphasize codes of conduct and to implement trainings in support of such policies. This new weapon in the arsenal of government investigators will undoubtedly be of interest to employees, especially senior executives. It provides an obvious reason to remind everyone of the rules and best practices that will keep them—and the company—out of the government’s crosshairs.
But the challenges presented by this new policy are manifold. Here are three that we anticipate:
- First, knowing that companies are under additional pressure to identify and disclose misconduct by individuals, employees may be more cautious when thinking about whether and to what extent they will cooperate with internal investigations. Among other things, candor may be chilled, actually making it harder for companies to identify and address misconduct, and employees may request their own counsel when they might not otherwise, potentially adding time and expense to investigations.
- Second, the threat that cooperation credit may be denied if prosecutors believe that a company has “decline[d] to learn” of misconduct may put pressure on companies to investigate more than otherwise might be reasonable or necessary.5 This creates a risk of unduly protracted and expensive investigations.
- Third, pressure on companies to deliver bad actors to the government creates a risk that companies will choose to disclose conduct that does not otherwise warrant disclosure. It also gives rise to the danger that companies will overplay the significance of certain conduct and/or decline to defend conduct that is defensible.
In the face of these challenges, companies should use the opportunity provided by compliance and other trainings to build trust and understanding with employees so that they will feel comfortable cooperating with internal investigations when they occur. Additionally, in executing an investigations plan, a company will be well-advised, if it is already in dialogue with the government, to have an express understanding as to the conduct that the company is and is not investigating so that it cannot later be accused of having “decline[d] to learn” of misconduct.6 Finally, companies must have discipline in making disclosures to the government. In the end, overplaying the significance of certain conduct may subject a company to more exposure in exchange for cooperation credit that may be of marginal value.