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The Yates Memo - New DOJ Guidance Focuses on Individuals in Corporate Investigations

By Sotiris "Ted" Planzos / Nov 30, 2015

On September 9, 2015, the Department of Justice (DOJ) released a policy memorandum entitled "Individual Accountability for Corporate Wrongdoing", authored by Deputy Attorney General Sally Quillian Yates.  The memo, referred to as the "Yates Memo", instructs federal prosecutors in both criminal and civil investigations to fully leverage resources to "identify culpable individuals at all levels in corporate cases." 
The memo, which applies to both criminal and civil investigations, sets forth the following six principles to guide DOJ actions and strengthen DOJ attorneys ability "to most effectively pursue the  individuals involved in or responsible for corporate wrongs."  

  1. To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about individuals involved in corporate misconduct.  (emphasis in the original)
  2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
  3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
  4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
  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 are memorialized.
  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.

The Yates memo serves as a directive to prosecutors to remain focused on individuals in investigations of wrongdoing, as well as matters pending as of September 9, 2015, "to the extent it is practicable to do so."  In her speech on September 10, 2015 at New York University  School of Law, DAG Yates described the new approach as "a substantial shift from our prior practice, " and that "It's all or nothing.  No more picking and choosing what gets disclosed,  No more partial credit for cooperation that does not include information about individuals."   DAG Yates went on to say 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," making the analogy of a company that fails to identify responsible individuals to a drug trafficker who refused to testify against a drug cartel leader.  She pointed out that the scope of cooperation would determine whether the Department decides to "bring the action against a parent or its subsidiary." 

In many respects, these principles are not new.  DOJ officials in the past have noted their interest and intention to prosecute those responsible for corporate misconduct.   For example, in a September 22, 2015 speech, Assistant Attorney General Leslie Caldwell, who heads up the Criminal Division, in discussing the Yates Memo said that experienced defense attorneys "may not ultimately see the new policy guidance as anything radical."

The Impact of Yates on Corporations, Corporate Counsel and Individuals

Clearly the most significant development regarding the Yates Memo is its instruction that to receive any cooperation credit a company must now "identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority, and provide to the Department all facts relating to that misconduct."  Thus, disclosure of information about individuals involved in or responsible for the wrongdoing is now a threshold requirement to receive cooperation credit at all, rather than simply a factor DOJ considers when deciding if it will give a company full cooperation credit.  Cooperation credit is now intended to be an "all or nothing" proposition, with no partial credit given to companies that DOJ perceives to have disclosed some, but not all, relevant information concerning individuals involved in wrongdoing.

This instruction creates at least two issues:  (1) pressuring lower level personnel to provide information DOJ wants, rather than the less helpful truth they may have and (2) less cooperation with internal investigations by executives concerned with implicating themselves in wrongdoing and hold that information to use as a bargaining chip with DOJ.  

The Yates Memo also raises a challenge for companies in connection with internal investigations and their ability to protect privilege information, while at the same time, receiving cooperation credit.  In 2008, the DOJ issued the "Principles of Federal Prosecution of Business Organizations", which 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 a corporation timely discloses relevant facts about putative misconduct."  The Yates Memo, with its emphasis on discovering and disclosing any and all relevant facts regarding potentially culpable individuals, can put a company in the untenable position where maintaining privilege and obtaining cooperation credit would be mutually exclusive.

Disclosing information to the DOJ that was discovered during an internal investigation raises serious concerns about waiver of attorney-client privilege and work product protection.   While both the Yates Memo and DAG Yates' speech carefully limit the required disclosures to "non-privileged" information,  how the DOJ will address privilege assertions by a corporation in connection with memos of interviews created during an internal investigation, especially of those individuals who may be potential targets of the DOJ investigation, when it comes time to assess whether the company has fully cooperated is not clear. 

Another challenge to companies is trying to determine the scale of an internal investigation required to satisfy the requirements the Yates memo presents.  DAG Yates indicated that DOJ does not expect companies to "embark upon a multi-million dollar investigation every time they learn about misconduct," rather, a company should pursue an investigation "that is tailored to the scope of the wrongdoing."  However, this appears to conflict with the requirement that a company both investigate and disclose all facts relevant to individual liability.  Indeed, DAG Yates acknowledged that in "diffuse" corporate structures, identifying a specific individual responsible for wrongdoing may be difficult, but emphasized that the burden is on the corporation to resolve this issue stating that"[i]f they don't know who is responsible, they need to find out."

The Yates Memo raises significant questions for companies and corporate counsel when responding to alleged wrongdoing such as:

  • If the company has discovered wrongdoing, but is concerned that it may not have sufficiently identified culpable actors to DOJ, will the company balk at disclosing the wrongdoing to the government for fear that it will not receive any credit for doing so?
  • Will  companies find it more difficult to secure cooperation from their own employees during internal  investigations?   A related question concerns the adequacy of Upjohn warnings given by corporate counsel to individual employees when talking with them during internal investigations. 
  • How should in-house counsel effectively serve the best interests of the company while maintaining working relationships with senior executives whose conduct may be under scrutiny?
  • How does in-house counsel deal with employees and officers who decline to be interviewed as part an internal investigation, or who request separate counsel, invoking the company's indemnification and advancement policies?
  • How will DOJ balance this new cooperation policy with its previously expressed policy not to force companies to disclosed privileged information as a condition of cooperation?
  • How does the new policy apply to individuals who had no knowledge of the wrongdoing but may be culpable under the responsible corporate officer doctrine?  United States v. Park, 421 U.S. 658 (1975).
  • How do the criminal grand jury secrecy rules affect the directive that criminal and civil prosecutors should  "routinely" communicate with each other?
  • Will companies find it more difficult and time-consuming to reach a global resolution with DOJ?

In the end, the Yates Memo raises the threshold for obtaining cooperation credit during a DOJ investigation, while at the same time, presenting obstacles for counsel to conduct a thorough internal investigation.  It is crucial for a company to develop as full and thorough a set of facts as possible when responding to government scrutiny.   As always, the best defense for a company remains how it responds proactively including:

  • Implementation of robust ethics and compliance programs designed to deter, identify and remediate violations of laws and regulations, coupled with employee training and issue reporting mechanisms;
  • Extensive management support of compliance efforts, including dedication of resources and active oversight by management, up to Board level;
  • Prompt management response to issues escalated to their attention;
  • Documentation that allow the company and its executives to demonstrate that they are working in good faith to operate the company ethically and in compliance with all laws and regulations.

It is too early to tell what the practical impact of the Yates Memo will be on companies who find themselves under investigation.  What is known is that internal investigations need to be conducted with caution taking into account the new guidance.  Finally, companies need to be proactive and implement strong compliance and ethics programs to prevent and detect potential wrongdoing, preempt government action and create a culture of corporate integrity.