DOJ Focuses on Individual Accountability: New Guidance for Corporate Investigations Places Pressure on Companies and Boards to Put Executives at RiskLitigation and Health Care & Life Sciences Client Alert October 2, 2015
On September 9, 2015, the Department of Justice (“DOJ”) issued new guidance on individual accountability for corporate wrongdoing. In the memorandum and an accompanying speech by the Deputy Attorney General Sally Q. Yates, the DOJ announced a new initiative designed to combat corporate misconduct and seek accountability from individuals involved in suspected corporate wrongdoing. While the Yates memorandum provides six specific criteria designed to guide prospective DOJ enforcement, largely against “C suite” individuals, it offers several significant takeaways and may call for a shift in how companies and their directors carry out their compliance and internal investigation functions.
The Yates memorandum derives, in large part, from congressional and public pressure on the federal justice system to ratchet up white-collar enforcement after the financial meltdown and a series of other headline settlements that were not considered sufficiently punitive. Thus, the health care and financial sectors, among others, are going to be firmly within the sights of the DOJ for the foreseeable future. While the Yates memorandum provides six specific criteria designed to guide prospective DOJ enforcement, largely against “C suite” individuals, it offers several significant takeaways—especially for board directors who, in particular, will need to pay close attention to questions of attorney-client privilege and avoiding conflicts or the appearance of conflicts of interest in seeking the advice of counsel. The Yates memorandum may also call for a shift in how companies and their directors carry out their compliance and internal investigative functions.
- Key Elements of the Yates Memorandum
- To be eligible for any cooperation credit, corporations must provide to the DOJ “all relevant facts” about the individuals involved in the corporate misconduct.
- Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
- Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
- Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
- Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires, and declinations as to individuals in such cases must be memorialized.
- Civil DOJ 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.
These changes will be incorporated into the U.S. Attorneys’ Manual and will supersede the factors for prosecuting business organizations from the prior 2008 “Filip memorandum” (also known as the “Principles of Federal Prosecution of Business Organizations”).
- Key Takeaways
- Cooperation is “all or nothing”— companies cannot receive cooperation credit without identifying culpable individuals and divulging all relevant facts.
According to the Yates memorandum, companies can only receive cooperation credit in criminal or civil matters by “completely disclos[ing]” all relevant facts about individual misconduct—regardless of an individual’s position, status, or seniority in the company. With this new “all or nothing” approach, companies cannot receive partial credit for cooperation that stops short of identifying culpable individuals. Companies will need to weigh carefully the benefits of this type of voluntary disclosure against the risk of not receiving credit, or that the information will be leveraged by the government in subsequent proceedings.
- The guidance may result in de facto erosion of the attorney-client privilege.
As noted in the 2008 so-called Filip memorandum issued by a previous Deputy and codified in the U.S. Attorneys’ Manual, a “corporation need not disclose, and prosecutors may not request” privileged communications or work product “as a condition for the corporation’s eligibility to receive cooperation credit.” This prohibition expressly includes notes and memoranda from interviews in connection with internal investigations, “so long as the corporation timely discloses relevant facts about the putative misconduct.”
While the Filip and Yates memoranda both purport to limit disclosures to strictly “non-privileged” information, the newer memo leaves the door open to the DOJ’s implicitly seeking privileged communications, or a waiver, under the auspices of searching for “all relevant facts” necessary for a company to earn cooperation credit. While “facts” may not be subject to privilege, the process in gathering them, as well as internal investigation documents (including interview notes, memoranda, and other work product) may be privileged and would be of particular concern if expected to be discussed, especially if the documents contain statements or information on culpable individuals, or if a corporation’s internal investigation—aside from privileged documents—was largely unfruitful in identifying culpable individuals. Thus, this new guidance may complicate a corporation’s ability to earn cooperation credit while preserving the attorney-client and work product privileges.
- The guidance may create complications for entities seeking to resolve corporate allegations while insulating individuals from liability.
Absent “extraordinary circumstances” or “approved departmental policy,” the Yates memorandum instructs DOJ attorneys not to—in either criminal or civil matters—“agree to a corporate resolution that includes an agreement to dismiss criminal charges against, or provide immunity for, individual officers or employees.” Companies seeking to expressly release certain individuals in connection with finalizing a settlement agreement are expected to face significant hurdles in light of this policy instruction. Further, investigations will likely take longer to complete since DOJ attorneys will now need to justify and receive approval in the event of a declination to pursue individual charges.
- Board members and executives must remain attuned to corporate activities.
With this new emphasis on organization-wide criminal and civil individual accountability, board members and other corporate executives need to remain abreast of company activities and initiatives to the extent necessary to be satisfied that the corporation and its key employees are acting in a manner consistent with the law. With the DOJ targeting personnel at the virtual onset of investigations, executive-level personnel may become unwittingly implicated in suspected wrongdoing. Internal documentation demonstrating how executives are working in good faith to operate the company in a manner consistent with applicable law, providing prompt responses and solutions to reported issues, among other things, are components that can be used to de-escalate prosecutorial inquiries in their nascence. Similarly, board-level efforts to evaluate compliance practices must be maintained and well documented. Increasingly, boards of directors may find it worthwhile to engage their own counsel, independent of that representing the company and management, as they consider potential action possibly adverse to the personal interests of company executives.
Attempting to “up the ante” in enforcement, the DOJ’s Yates memorandum targets individuals and essentially provides that companies must expose them to individual liability in order to receive any kind of cooperation credit. While the Yates memorandum does not constitute binding law, its dictates nevertheless apply to all pending matters and future investigations of corporate wrongdoing by the federal government. What remains to be seen is what effect this guidance will have on individual prosecutions and corporate resolutions; however, the DOJ’s position is unequivocal, and it is clear that, going forward,“[t]he rules have just changed.”
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This Client Alert was authored by George B. Breen, Stuart M. Gerson, and Daniel C. Fundakowski. For additional information about the issues discussed in this Client Alert, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.
 See “Individual Accountability for Corporate Wrongdoing,” Sept. 9, 2015.
 See “Deputy Attorney General Sally Quillian Yates Delivers Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing,” Sept. 10, 2015.
 Id. (emphasis added).
 Sally Quillian Yates, Deputy Attorney Gen., U.S. Dep’t of Justice, “Deputy Attorney General Sally Quillian Yates Delivers Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing,” (Sept. 10, 2015).