The Rules Have Just Changed: DOJ Issues New Guidance Targeting Individuals in Corporate Investigations, 0716 ALBJ, 77 The Alabama Lawyer 265 (2016)
| Author | G. Douglas Jones and Christopher J. Nicholson |
| Position | Vol. 77 4 Pg. 265 |
G. Douglas Jones and Christopher J. Nicholson
The economic ravages wrought by the Great Recession of 2008 altered the lives of millions of people around the country-and the world-in profound and sometimes irrevocable ways. So, too, did the recession change the legal landscape, with perhaps the most direct and well-known consequence being the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act,1 which the Wall Street Journal called “the biggest expansion of government power over banking and markets since the Depression.”2 Nearly a decade after the Great Recession began in the United States, the causes of the financial downturn have been well documented, and they continue to be researched, studied, parsed and written about by some of the finest economic and legal scholars in the world.
And yet, even as the country slowly recovers and the roots of the global economic crisis are better understood, questions of ultimate accountability persist in the public consciousness. Who is to blame? Why has no one been held a ccountable? Where are the indictments and the prosecutions? On April 14, 2011, the New York Times ran a front-page story with the headline, "In Financial Crisis, No Prosecutions of Top Figures."3 Three years later, the New York Times Magazine published a story titled, "The Fall Guy" in its print version, now available online under the headline "Why Only One Top Banker Went to Jail for the Financial Crisis."4 Last November, former Federal Reserve Chair Ben Bernanke expressed the belief that more corporate executives should have been jailed for their roles in causing the Great Recession.5 "[I]t would have been my preference to have more investigation of individual action, since obviously everything what went wrong or was illegal was done by some individual, not by an abstract firm."6There is also little doubt that the public's frustration with the lack of prosecutions helped fuel the surprising campaign of Sen. Bernie Sanders, a Democratic Socialist who was never seen as a serious opponent of Hillary Clinton.
Although civil enforcement actions against corporations have resulted in record fines over the last few years, it appears that key officials within the Department of Justice ("DOJ" or "the Department") have shared Bernanke's and the . general public's frustrations that general public’s frustrations that there have not been enough criminal charges or civil claims brought against individuals. On September 9, 2015, Deputy Attorney General Sally Quillian Yates7 issued a memorandum for general distribution to all of the DOJ's prosecutors and civil litigators, as well as the directors of the Federal Bureau of Investigation and the Executive Office of United States Trustees.[8] The memorandum is entitled "Individual Accountability for Corporate Wrongdoing," and its contents-which reflect a blend of policy restatements, expansions and shifts-center on what the DAG characterizes as "six key steps to strengthen our pursuit of individual corporate wrongdoing."9In accord with the nomenclature given to memoranda authored by Deputy Attorneys General, this memorandum has come to be known simply as the Yates Memo.
The Yates Memo is by no means the first expression of the DOJ's desire to hold individuals accountable for corporate wrongdoing. For instance, then-Deputy Attorney General Eric Holder issued a memorandum in 1999 to all DOJ component heads and United States Attorneys entitled, "Bringing Criminal Charges Against Corporations."10 Significantly, Holder wrote in that memorandum that Charging a corporation ... does not mean that individual directors, officers, employees, or shareholders should not also be charged. Prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or without the corporation. Further, imposition of individual criminal liability on such individuals provides a strong deterrent against future corporate wrongdoing.11
Clearly, however, the DOJ has struggled with developing a consistent, workable policy involving corporate versus individual criminal liability. The Holder Memo is the first in a line of memoranda from Deputy Attorneys General that include the Thompson Memo (2003),12 the McNulty Memo (2006)13and the Filip Memo (2008),14all of which restated the Department's desire to hold individuals accountable for corporate wrongdoing, and throughout which the principles applicable to the prosecution of corporate wrongdoing continued to be refined. This evolution included the adoption in the U.S. Attorneys' Manual ("USAM") of the Principles of Federal Prosecution of Business Organizations.15
Fifteen years after issuing the Holder Memo, Attorney General Holder echoed his 1999 writings i n remarks delivered at NYU regarding financial fraud cases. “[W]henever we have resolved these cases–whether they were civil or criminal in nature–we have almost always reserved the right to continue our civil and criminal investigations into individual executives at the respective firms. This is because, when it comes to financial fraud, the department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them.”16
Elaborating on this theme, Attorney General Holder stated that civil and criminal investigations of individual corporate actors enhance accountability, promote fairness and constitute a powerful deterrent against future corporate wrongdoing.17 A year later, Deputy Attorney General Yates used the stage at NYU as the launching pad for the Yates Memo, referencing Holder’s words that highlighted the (at least rhetorical) consistency of the DOJ’s policy regarding individual accountability, and providing context to the “six key steps” of the Yates Memo.18
While the Yates Memo may not have changed the basic rhetoric of the DOJ, however, it most certainly, and arguably dramatically, altered the functional policy of DOJ prosecutors and civil litigators in ways that will affect general counsel, outside corporate counsel and litigators in their representation of businesses and executives. Indeed, as the DAG herself stated, “The rules have just changed.”[19]
It is crucial to emphasize that the guidance set forth in the Yates Memo applies to federal prosecutors and litigators in both civil and criminal matters.20 Further, Deputy Attorney General Yates expressly states that the principles of the memo apply not only prospec-tively to new matters, but should also be incorporated into pending matters to the extent practicable.21 When this article comes to print, many of you will likely already have seen certain subtle or overt shifts in the DOJ’s approach to cases involving corporate misconduct. Careful review of the Yates Memo’s “six key steps” is therefore critical for corporate counsel who may come to represent either the entity or an individual in the DOJ’s crosshairs.
What the Yates Memo Says
The Yates Memo outlines “six key steps” for DOJ lawyers to follow in order to broaden the focus on corporate wrongdoing to include individual responsibility.
“1. To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.”22 , [23]
Deputy Attorney General Yates leads with the strongest policy shift–the “teeth” of the changes outlined in her memorandum. No longer will it be sufficient for a corporation to cooperate short of “giving up” individuals to the investigators. As the DAG made clear in her speech, there will no longer be any partial credit when it comes to identifying individuals. Effective immediately, we have revised our policy guidance to require that if a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct. 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.24
Furthermore, Yates recognizes that this “all-or-nothing” approach is a significant departure from prior practice. [U]ntil now, companies could cooperate with the government by voluntarily disclosing improper corporate practices, but then stop short of identifying who engaged in the wrongdoing and what exactly they did. While the companies weren’t entitled to full credit for cooperation, they could still get credit for what they did do and that credit could be enough to avoid indictment.25
And, under the new policy, it will not be enough for a corporation to merely divulge what it already knows about potentially culpable individuals. The Yates Memo places an affirmative burden on a corporation to conduct an investigation focused on rooting out individual wrongdoers, if that corporation wants any cooperation credit. In Yates’s words: “The rules have just changed. Effective today, if a company wants any consideration for its cooperation, it must give up the individuals, no matter where they sit within the company. And we’re not going to let corporations plead ignorance. If they don’t know who is responsible, they will need to find out. If they want any cooperation credit, they will need to investigate and identify the responsible parties, then provide all non-privileged evidence implicating those individuals.”26
Yates likened the new policy to that already routinely applied to individual cooperators in other types of criminal...
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