New DOJ Corporate Prosecution Guidelines

New DOJ Corporate Prosecution Guidelines

New DOJ Corporate Prosecution Guidelines

On September 9, 2015, United States Deputy Attorney General Sally Yates released a memorandum titled “Individual Accountability for Corporate Wrongdoing,” the latest in a series of corporate prosecution guidelines written by Deputy Attorney Generals dating back to what is commonly – and informally – referred to as the “Holder Memo” in 1999.  The guidelines in the “Yates Memo” are not binding, but rather direct United States Department of Justice (“DOJ”)  attorneys on the appropriate manner in which to conduct corporate fraud investigations, charging decisions and strategic considerations when implementing established DOJ policies.

Background of DOJ Memos
The Deputy Attorney General memos have evolved, starting with the Holder Memo’s evolution to the Thompson Memo in 2003, which focused on factors a DOJ prosecutor must evaluate when determining whether or not to charge a corporation.  These factors included a corporation’s history of violations, whether the corporation voluntary disclosed its wrongdoing, and the effectiveness of the corporation’s existing compliance plans, among others.

Following a storm of controversy surrounding the Thompson Memo, then Deputy Attorney General Paul McNulty issued his memo in 2006.  The polemic response to the Thompson Memo arose from the document’s corporate cooperation credit requirements which obliged companies to produce materials from their internal investigations, deny indemnification of legal fees for employees who were targets of investigation and most importantly, waive the sacrosanct attorney-client privilege. The McNulty Memo policies, in essence, still encouraged the waiver of attorney-client privilege to expedite government investigations and required companies to provide full disclosure of facts related to wrongdoing, but softened the DOJ’s stance on indemnification.  Many outside the DOJ, including former DOJ officials and alumni, condemned the McNulty Memo for not going far enough to correct the issues with the Thompson Memo.

Following the McNulty Memo, 2008’s Filip Memo analyzed circumstances in which  a corporation could earn “cooperation credit” in order to avoid an indictment or receive reduced penalties.  Credit was given to corporations when they disclosed relevant facts.  The Filip Memo also prohibited prosecutors from requesting non-factual attorney-client privileged materials.  Some DOJ insiders were critical of the Filip Memo in that it became more challenging for DOJ attorneys to charge corporations than under the Thompson and McNulty Memos.

The New Yates Memo Guidelines
While the Yates Memo is substantively similar to previous corporate prosecution guidelines, Ms. Yates’s Memo expresses new policies that distinguish it from previous memos. The Yates Memo stresses the importance of holding individuals accountable for alleged criminal activity and incentivizes forward looking changes in the corporate setting.  This focus on the individual digresses from the previous guidelines that had placed a greater emphasis on charging the corporation.

The memo addresses six key guidelines for DOJ attorneys in determining whether to proceed with criminal and civil charges against corporations and individuals.  These guidelines include:

  • Corporations must provide to the DOJ all relevant facts relating to individuals responsible for the misconduct in order for corporations to receive any cooperation credit;
  • The focus of both criminal and civil corporate investigations should be on the  individuals from the inception of the investigation;
  • Criminal prosecutors and civil attorneys should be in persistent communication with each other from the beginning of the investigation process;
  • DOJ attorneys should not release culpable individuals from a civil or criminal investigation absent “extraordinary circumstances;”
  • DOJ criminal attorneys should not resolve matters with a corporation without a clear plan of how to resolve the individual cases; and
  • DOJ civil attorneys should consider filing suit against individuals in addition to filing suit against a corporation.

The Yates Memo encourages the DOJ to take a proactive approach in investigating individuals rather than waiting for the company to deliver the information about individual wrongdoers.  The Yates Memo reverses DOJ policy established in the Filip Memo by requiring companies to identify all individuals involved “regardless of their position, status or seniority,” in order to receive credit for cooperation.  This may, once again, erode the attorney-client privilege as it appears to require a corporation to turn over information that is protected.  Additionally, the Yates Memo focuses on the importance of communication between criminal and civil DOJ attorneys, and how the DOJ believes that this communication will lead to the end goal of resolving corporate misconduct.  The Yates Memo policies supports the bringing of civil suits, even when the likelihood of recovery is minimal, in order to hold the wrongdoers accountable.

What Can We Expect?
Based on the language of the Yates Memo it appears there will be a strong shift in the DOJ’s focus toward individual accountability which may improve its prosecutorial measures that have previously been criticized for its leniency toward alleged individual wrongdoers.  Additionally, the DOJ aspires to avoid court rulings that allow culpable individuals to escape liability, which the DOJ may believe occurred in the 2006 corporate misconduct case, United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006) aff’d, 541 F.3d 130 (2d Cir. 2008). In this case, several former KPMG partners and the former deputy chairman were indicted for alleged fraud in marketing abusive tax shelters.  KPMG, the company, admitted to fraudulently creating tax shelters to allow their clients to save approximately $2.5 billion dollars in evaded taxes.  The Second Circuit upheld the finding that the DOJ prosecutors violated the Sixth Amendment Rights of the individual defendants when the prosecutors pressured KPMG to deny the payment of attorney’s fees on behalf of the individual defendants.  The DOJ required KPMG to comply with the denial of attorney’s fees as part of the deferred prosecution agreement it entered to resolve the criminal investigation into the firm’s conduct in creating the tax shelters.  Because of this unconstitutional pressure, all criminal charges against the former executives were dismissed.

Corporations and their employees are at a loss as to what the Yates Memo means for the future federal prosecutions and investigations.  The answer to this question remains uncertain.  However, it appears that the DOJ is, once again, demanding full and complete access to facts throughout the investigation process in order for a corporation to receive cooperation credit.  The new policies are likely to place further hurdles for companies by increasing the amount of information companies must provide to resolve cases with the DOJ.  The policies will pressure companies to provide more factual evidence than previously required against the individual wrongdoers in order to receive cooperation credit.

There is also the question of whether corporate counsel will be forced to add a warning discussion with individuals during Upjohn warnings of the new guidelines being followed by DOJ prosecutors and the likelihood of future criminal prosecutions against them. See Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981).

Further, individuals should expect to be prosecuted for their involvement in corporate misconduct.  With recent corporate misconduct investigations coming to fruition, including  FIFA (allegations of collusion between football officials and sports marketing executives) and Volkswagen (allegations of falsifying U.S. pollution tests), some of the answers to some of these questions may be near.

As a result of the Yates Memo:

  • Corporations will have to walk a challenging mine field when collecting information during internal investigations, knowing that, in order to be considered “cooperative,” a company will have to compromise the liberty of their culpable employees.
  • Corporations should expect to expend more resources in order to identify these culpable – and prosecutable – individuals.
  • A clear conflict now exists between corporate counsel (in-house and outside counsel) and potentially responsible individuals.
  • Corporations should continue to be concerned with the prospect of parallel civil suits when evaluating whether to cooperate in a DOJ criminal investigation and vice versa.

It is imperative that corporate counsel consider these issues at the outset of an internal investigation.


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