In a memo (Yates memo) released on Wednesday, September 9, 2015, followed by a major policy address on Thursday, September 10, 2015, by Deputy Attorney General (DAG) Sally Q. Yates, the Department of Justice (DOJ) issued new guidance regarding “individual accountability for corporate wrongdoing.” The memo articulates several changes to DOJ policy. Although some of its major points largely reflect and expand upon existing practices regarding the investigation and prosecution of corporate wrongdoing, other aspects of the memo introduce new challenges for corporate internal investigations—particularly with regard to the ability to protect privileged information while still receiving credit for cooperating with a government investigation. For environmental matters the policy would be a fundamentally new approach, especially for civil cases.
The Yates memo sets out six principles to guide DOJ enforcement actions:
The principal thrust of the new guidance—the requirement that a self-reporting company seeking cooperation credit make a full disclosure to the DOJ, particularly by identifying culpable individuals—expands on the already-existing DOJ practices in criminal cases. In distinguishing between cases in which companies have been punished severely and ones in which companies have received lenient treatment, the DOJ has already emphasized the significance of a company’s disclosures regarding corporate officers involved in wrongdoing. For example, several companies that have recently been charged and convicted of serious offenses—and have paid steep fines as punishment—were criticized by the DOJ for “dragging [their] feet” in ways that “thwarted the department’s ability to bring charges against responsible individuals.”1 By contrast, the DOJ has applauded the efforts of Petrotiger, which engaged Sidley Austin to conduct an internal investigation into allegations of bribery in Colombia and to represent it before the DOJ. After that investigation, Petrotiger “self-reported and fully cooperated with the department’s investigation”2 of Foreign Corrupt Practices Act violations, including by providing extensive evidence against Petrotiger’s co-CEOs and general counsel developed during the internal investigation. All three individuals were convicted of a variety of bribery and fraud offenses, but the company itself was rewarded for its disclosures with a complete declination of prosecution and has been held out as a model for effective corporate cooperation with a criminal investigation.
DAG Yates indicated, however, that this policy may now be enforced more stringently. In her speech, she described the new approach to corporate cooperation as “all or nothing,” and stated that companies would now be held to the same standards of disclosure that the DOJ would “apply to cooperators in any other type of criminal prosecutions,” analogizing a company that fails to identify responsible individuals to a drug trafficker who is unwilling to testify against a cartel boss. These considerations will also apply to charging decisions in civil cases—in particular DAG Yates highlighted that the scope of cooperation would determine whether DOJ chooses to “bring the action against a parent or its subsidiary.”
Some aspects of this new requirement will likely pose challenges for companies conducting internal investigations. The 2008 Filip Memo (also known as the Principles of Federal Prosecution of Business Organizations) established that a “corporation does not need to produce, and prosecutors may not request” privileged materials “as a condition for the corporation’s eligibility to receive cooperation credit,” including memos of interviews conducted during an investigation, “so long as the corporation timely discloses relevant facts about the putative misconduct.”3 Although both the Yates memo and the accompanying speech carefully limit the required disclosures to “non-privileged” information, it is unclear how the DOJ will address assertions of privilege in internal investigations in the assessment of total cooperation, particularly with regard to any decisions not to share interview memos reflecting the statements of individuals who may be potential targets for prosecution. Likewise, if a company is unable to establish individual culpability through an internal investigation, it may have no choice but to waive privilege in order to demonstrate why not. The Yates memo’s emphasis on both discovering and disclosing any and all relevant facts about potentially culpable individuals has the potential to put companies in an untenable position in which maintaining privilege and receiving cooperation credit are mutually exclusive aims. DAG Yates indicated that the changes announced today would be accompanied by revisions to the U.S. Attorney’s Manual and to the Filip Memo, so it is possible that the safe harbor provided by the Filip Memo may be limited in the future.
An additional challenge going forward will be determining what scale of internal investigation is required to satisfy these requirements. DAG Yates indicated that the DOJ would not expect companies to “embark upon a multimillion-dollar investigation every time they learn about misconduct,” but rather that they should pursue an investigation “that is tailored to the scope of the wrongdoing.” That limited expectation, however, may be in tension with the newly-broadened requirement that a company both investigate and disclose all facts relevant to individual liability. DAG Yates acknowledged that in “diffuse” corporate structures, identifying any particular individual responsible for wrongdoing may be difficult, but nevertheless emphasized that the onus is on the corporation to resolve that question, stating that “[i]f they don’t know who is responsible, they need to find out.” Establishing culpability for any one individual can be extremely difficult, particularly in cases involving failures to implement adequate safeguards, and can require a deep and probing—and potentially expensive—investigation beyond what might be required solely to identify the wrongdoing and enable basic remediation within the company itself. It may be possible to identify individuals whose role in certain conduct would warrant termination, but the new guidance suggests that the DOJ expects companies to go further, developing evidence of legal culpability sufficient to assist materially in prosecuting those individuals. Given the description of the new approach as “all or nothing,” careful consultation with experienced counsel will clearly be required for any company seeking cooperation credit to determine just what sort of tailoring is appropriate for a given investigation.
A second major issue raised by the guidance is its stated preference for resolving individual cases before corporate ones. The Yates memo requires that if investigation of individual wrongdoing is still ongoing, an accompanying corporate case can be closed only if prosecutors memorialize a clear plan for the resolution of the individual cases. During her speech, DAG Yates indicated that, in practice, the DOJ will seek “[i]n most instances [to] … resolve cases with individuals before or at the same time that we resolve the matter against the corporation.” This raises the possibility that corporations could spend long periods of time in limbo, cooperating with the DOJ, and for public companies, making the relevant public disclosures of pending legal issues, but nevertheless unable to obtain closure. Similarly, the requirement that prosecutors memorialize the reasons for any declination of prosecution against individuals—the most obvious addition of the Yates memo—has the potential to encourage more such prosecutions, imposing ongoing cooperation obligations for companies and further extending the time before any issues can be closed.
Finally, the DOJ is reducing the role that an individual’s ability to satisfy a civil judgment can play in determining whether to bring civil charges. DAG Yates indicated that, going forward, “civil lawyers will be looking at factors similar to those considered by criminal prosecutors” and that “financial resources will only be one factor” in making civil charging decisions, recasting the role of civil litigation against individuals as focused on establishing accountability and broader deterrence, rather than achieving a monetary recovery.
This new guidance could represent a paradigm shift for public health and welfare areas with parallel tracks of civil and criminal enforcement, such as environmental law, where crimes typically require only general intent, with simple negligence sufficient to establish criminal liability in some areas such as the Clean Air and Water Acts and the wildlife statutes and strict liability often the standard for civil cases. Likewise, the impact of assertions of either legal privilege by corporations or Fifth Amendment protections by individuals on the ability of a company to receive cooperation credit are likewise unresolved. Until there is further clarity, however, corporate internal investigations must proceed with great care, and corporate executives should be on notice that a company may be obligated to put them in the crosshairs of the DOJ.
1 http://www.justice.gov/opa/speech/assistant-attorney-general-leslie-r-caldwell-delivers-remarks-new-york-city-bar-0
2 Id.
3 http://www.justice.gov/sites/default/files/dag/legacy/2008/11/03/dag-memo-08282008.pdf
D&O Implications
For more information concerning how the DOJ’s new focus on individual accountability affects Directors and Officers insurance coverage, please see our previous Sidley Update, here.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or
Sidley Environmental Practice
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Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.
The Yates memo sets out six principles to guide DOJ enforcement actions:
- To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about the individuals involved in 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 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.
The principal thrust of the new guidance—the requirement that a self-reporting company seeking cooperation credit make a full disclosure to the DOJ, particularly by identifying culpable individuals—expands on the already-existing DOJ practices in criminal cases. In distinguishing between cases in which companies have been punished severely and ones in which companies have received lenient treatment, the DOJ has already emphasized the significance of a company’s disclosures regarding corporate officers involved in wrongdoing. For example, several companies that have recently been charged and convicted of serious offenses—and have paid steep fines as punishment—were criticized by the DOJ for “dragging [their] feet” in ways that “thwarted the department’s ability to bring charges against responsible individuals.”1 By contrast, the DOJ has applauded the efforts of Petrotiger, which engaged Sidley Austin to conduct an internal investigation into allegations of bribery in Colombia and to represent it before the DOJ. After that investigation, Petrotiger “self-reported and fully cooperated with the department’s investigation”2 of Foreign Corrupt Practices Act violations, including by providing extensive evidence against Petrotiger’s co-CEOs and general counsel developed during the internal investigation. All three individuals were convicted of a variety of bribery and fraud offenses, but the company itself was rewarded for its disclosures with a complete declination of prosecution and has been held out as a model for effective corporate cooperation with a criminal investigation.
DAG Yates indicated, however, that this policy may now be enforced more stringently. In her speech, she described the new approach to corporate cooperation as “all or nothing,” and stated that companies would now be held to the same standards of disclosure that the DOJ would “apply to cooperators in any other type of criminal prosecutions,” analogizing a company that fails to identify responsible individuals to a drug trafficker who is unwilling to testify against a cartel boss. These considerations will also apply to charging decisions in civil cases—in particular DAG Yates highlighted that the scope of cooperation would determine whether DOJ chooses to “bring the action against a parent or its subsidiary.”
Some aspects of this new requirement will likely pose challenges for companies conducting internal investigations. The 2008 Filip Memo (also known as the Principles of Federal Prosecution of Business Organizations) established that a “corporation does not need to produce, and prosecutors may not request” privileged materials “as a condition for the corporation’s eligibility to receive cooperation credit,” including memos of interviews conducted during an investigation, “so long as the corporation timely discloses relevant facts about the putative misconduct.”3 Although both the Yates memo and the accompanying speech carefully limit the required disclosures to “non-privileged” information, it is unclear how the DOJ will address assertions of privilege in internal investigations in the assessment of total cooperation, particularly with regard to any decisions not to share interview memos reflecting the statements of individuals who may be potential targets for prosecution. Likewise, if a company is unable to establish individual culpability through an internal investigation, it may have no choice but to waive privilege in order to demonstrate why not. The Yates memo’s emphasis on both discovering and disclosing any and all relevant facts about potentially culpable individuals has the potential to put companies in an untenable position in which maintaining privilege and receiving cooperation credit are mutually exclusive aims. DAG Yates indicated that the changes announced today would be accompanied by revisions to the U.S. Attorney’s Manual and to the Filip Memo, so it is possible that the safe harbor provided by the Filip Memo may be limited in the future.
An additional challenge going forward will be determining what scale of internal investigation is required to satisfy these requirements. DAG Yates indicated that the DOJ would not expect companies to “embark upon a multimillion-dollar investigation every time they learn about misconduct,” but rather that they should pursue an investigation “that is tailored to the scope of the wrongdoing.” That limited expectation, however, may be in tension with the newly-broadened requirement that a company both investigate and disclose all facts relevant to individual liability. DAG Yates acknowledged that in “diffuse” corporate structures, identifying any particular individual responsible for wrongdoing may be difficult, but nevertheless emphasized that the onus is on the corporation to resolve that question, stating that “[i]f they don’t know who is responsible, they need to find out.” Establishing culpability for any one individual can be extremely difficult, particularly in cases involving failures to implement adequate safeguards, and can require a deep and probing—and potentially expensive—investigation beyond what might be required solely to identify the wrongdoing and enable basic remediation within the company itself. It may be possible to identify individuals whose role in certain conduct would warrant termination, but the new guidance suggests that the DOJ expects companies to go further, developing evidence of legal culpability sufficient to assist materially in prosecuting those individuals. Given the description of the new approach as “all or nothing,” careful consultation with experienced counsel will clearly be required for any company seeking cooperation credit to determine just what sort of tailoring is appropriate for a given investigation.
A second major issue raised by the guidance is its stated preference for resolving individual cases before corporate ones. The Yates memo requires that if investigation of individual wrongdoing is still ongoing, an accompanying corporate case can be closed only if prosecutors memorialize a clear plan for the resolution of the individual cases. During her speech, DAG Yates indicated that, in practice, the DOJ will seek “[i]n most instances [to] … resolve cases with individuals before or at the same time that we resolve the matter against the corporation.” This raises the possibility that corporations could spend long periods of time in limbo, cooperating with the DOJ, and for public companies, making the relevant public disclosures of pending legal issues, but nevertheless unable to obtain closure. Similarly, the requirement that prosecutors memorialize the reasons for any declination of prosecution against individuals—the most obvious addition of the Yates memo—has the potential to encourage more such prosecutions, imposing ongoing cooperation obligations for companies and further extending the time before any issues can be closed.
Finally, the DOJ is reducing the role that an individual’s ability to satisfy a civil judgment can play in determining whether to bring civil charges. DAG Yates indicated that, going forward, “civil lawyers will be looking at factors similar to those considered by criminal prosecutors” and that “financial resources will only be one factor” in making civil charging decisions, recasting the role of civil litigation against individuals as focused on establishing accountability and broader deterrence, rather than achieving a monetary recovery.
This new guidance could represent a paradigm shift for public health and welfare areas with parallel tracks of civil and criminal enforcement, such as environmental law, where crimes typically require only general intent, with simple negligence sufficient to establish criminal liability in some areas such as the Clean Air and Water Acts and the wildlife statutes and strict liability often the standard for civil cases. Likewise, the impact of assertions of either legal privilege by corporations or Fifth Amendment protections by individuals on the ability of a company to receive cooperation credit are likewise unresolved. Until there is further clarity, however, corporate internal investigations must proceed with great care, and corporate executives should be on notice that a company may be obligated to put them in the crosshairs of the DOJ.
1 http://www.justice.gov/opa/speech/assistant-attorney-general-leslie-r-caldwell-delivers-remarks-new-york-city-bar-0
2 Id.
3 http://www.justice.gov/sites/default/files/dag/legacy/2008/11/03/dag-memo-08282008.pdf
D&O Implications
For more information concerning how the DOJ’s new focus on individual accountability affects Directors and Officers insurance coverage, please see our previous Sidley Update, here.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or
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Sidley Environmental Practice
To receive Sidley Updates, please subscribe at www.sidley.com/subscribe.
Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.