On Sept. 9, 2015, the Department of Justice ("DOJ") announced new measures to fortify its pursuit of corporate wrongdoing in criminal and civil matters. The policy shift, set forth in a memorandum from Deputy Attorney General Sally Yates, seeks to hold individuals accountable for corporate wrongdoing and ensure full cooperation from corporations in "ferreting out" individual misconduct.
Funds are already facing heightened regulatory requirements. The newly announced policy now marks an additional shift for funds under investigation. Most significantly, the memorandum departs from prior policy in announcing that no credit for cooperation will be given to corporations that fail to satisfy prosecutors that they have cooperated "completely" with respect to investigating individuals within their firm. The new standard for full cooperation requires companies to identify the individuals responsible for the misconduct the government is investigating — to learn who they are — and disclose that information to the prosecutors. The rules also explicitly apply to employees at all levels, including top-level management.
As the first major policy the department has announced since Attorney General Loretta Lynch took over in April, the new rules have been interpreted as an acknowledgment of criticism that the DOJ hasn't done enough to punish specific executives involved in the housing crisis, the financial meltdown and other corporate scandals, despite the record fines it has secured from banks and corporations.
Indeed, Deputy Yates stated that the DOJ believes it has placed too much emphasis on extracting large amounts of money in corporate investigations and not enough emphasis on bringing charges against individuals.
"It's only fair that the people who are responsible for committing those crimes be held accountable," the memorandum states. "The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom."
The memorandum enumerated six measures that the department intends to implement in corporate investigations:
1. To be eligible for any cooperation credit, corporations must provide to the department all relevant facts about the individuals involved in corporate misconduct. The DAG's memorandum explains that corporations must be forthright and timely in turning over all nonprivileged information "relating to the [corporate] misconduct," and identify the individual wrongdoers regardless of their "position, status, or seniority." If a corporation either "declines to learn" or to provide to the DOJ complete factual information about individual wrongdoers, the corporation will not receive any credit for cooperation.
2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation. According to the memorandum, a focus on individual culpability is the most effective way to determine the facts and encourage individuals with knowledge of misconduct to cooperate with the government and provide information that allows the DOJ to prosecute others higher up in the organization.
3. Criminal and civil DOJ attorneys handling corporate investigations should be in routine communication with one another. Criminal and civil attorneys are expected to notify each other "as early as permissible" of conduct that may be worthy of inquiry by the other.
4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals. DOJ attorneys are directed not to agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees, except in extraordinary circumstances. Any such agreement must be approved by an Assistant Attorney General or United States Attorney.
5. 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. The memorandum further directs that "every effort should be made to resolve a corporate matter within the statutorily allotted time" and that tolling agreements should be the "rare exception."
6. 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. An individual's ability to pay "should not control" the evaluation of whether to bring a civil case. DOJ attorneys should also consider the seriousness of the misconduct, the individual's misconduct and past history, the circumstances relating to the misconduct, and the provability of the claims through admissible evidence, among other factors.
The memorandum states that the policies should apply not only to future investigations, but also to matters currently pending "to the extent practicable to do so." Only after the new policy has been in effect for a substantial period will it be possible to determine whether it will have its desired effect of facilitating successful prosecutions of individuals in investigations of corporate wrongdoing.
There is, however, a possibility that the heightened cooperation standard will deter some corporations from heading down the road of cooperation, especially where the corporation is concerned that, despite significant effort and expense, it will fail in meeting the higher bar that the DOJ has now put in place.
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